KILLBUCK BANCSHARES INC
Business
Risk Factors          Item 1B     Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders           PART II
Market for the Registrant’s Common Stock and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations          Item 7A.     Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures           PART III
Directors and Executive Officers of Registrant          Item 11.     Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accountant Fees and Services           PART IV
Exhibits, Financial Statement Schedules, and Reports on Form 8-K               Signatures        Table of Contents  PART I  Killbuck Bancshares, Inc. (the “Company”) may from time to time make written or oral “forward-looking statements”, including statements contained in the Company’s filings with the securities and exchange commission (including this annual report on Form 10-K and the exhibits thereto), in its report to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the private securities litigation reform act of 1995.  These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the board of governors of the federal reserve system, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and savings habits; and the success of the Company at managing the risks involved in the foregoing.  The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.   Item 1. Business  Killbuck Bancshares, Inc. (the “Company”) was incorporated under the laws of the State of Ohio on November 29, 1991 at the direction of management of the Killbuck Savings Bank Company (the “Bank,”) for the purpose of becoming a bank holding company by acquiring all of the outstanding shares of the Bank. In November 1992, the Company became the sole shareholder of the Bank. The Bank carries on business under the name “The Killbuck Savings Bank Company.” The principal office of the Company is located at 165 N. Main Street, Killbuck, Ohio. The Killbuck Savings Bank Company was established under the banking laws of the State of Ohio in September, 1900.  The Bank is headquartered in Killbuck, Ohio, which is located in the northeast portion of Ohio, in the County of Holmes. Holmes County has a population of approximately 37,000.  The Bank provides a wide range of retail banking services to individuals and small to medium-sized businesses. These services include various deposit products, business and personal loans, credit cards, residential mortgage loans, home equity loans, internet banking, bill payment, and other consumer oriented financial services including IRA accounts, Health Savings Accounts (HSA), safe deposit and night depository facilities. The Bank also has automatic teller machines located at all locations providing 24 hour banking service to our customers. The Bank belongs to STAR, a national ATM network with thousands of locations nationwide. Neither the Company nor the Bank has any foreign operations, assets, investments or deposits.  The Company has one wholly owned subsidiary, The Killbuck Savings Bank Company. The Bank has ten offices, with seven in Holmes County including a loan production office, two in Knox County and one in Tuscarawas County. The full service branch facility in Sugarcreek, Ohio in Tuscarawas County opened in February 2000. The full service branch facility in Howard, Ohio in Knox County opened in July 2001. The Loan Production office in Millersburg, Ohio in Holmes County opened in July 2003. The full service branch facility in Berlin, Ohio in Holmes County opened in the German Village Market complex in April 2004.    Table of Contents The Company, through its subsidiary, The Killbuck Savings Bank Company, conducts the business of a commercial banking organization. At December 31, 2005, the Company and its subsidiary had consolidated total assets of $298,049,960 and consolidated total equity of $37,049,303. The capital of the Company consists of 1,000,000 authorized shares of capital stock, no par value of which 647,760 shares were outstanding at December 31, 2005 to 1,023 shareholders.  The Bank is a state banking Company. The Bank is regulated by the Ohio Division of Financial Institutions (“ODFI”) and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent permitted by law and, as a subsidiary of the Company, is regulated by the Federal Reserve Board.  Employees  As of December 31, 2005, the Bank had 99 full-time and 25 part-time employees. The Company had no employees. The Bank provides a number of benefits for its full-time employees, including health and life insurance, pension, workers’ compensation, social security, paid vacations, and numerous bank services. No employees are union participants or subject to a collective bargaining agreement.  Competition  The commercial banking business in the market areas served by the Bank is very competitive. The Company and the Bank are in competition with commercial banks located in their own service areas. Some competitors of the Company and the Bank are substantially larger than the Bank. In addition to local bank competition, the Bank competes with larger commercial banks located in metropolitan areas, savings banks, savings and loan associations, credit unions, finance companies and other financial institutions for loans and deposits.  There are eight financial institutions operating in Holmes County. As of June 30, 2005 (the most recent date for which information is available) the Bank had the largest market share with $198.8 million in total deposits as of such date, representing a market share of 39.54%. The institution with the second largest market share had deposits of $194.0 million as of such date, representing a market share of 38.65%. The Bank had total assets as of December 31, 2005, of $298.1 million compared to the other institution’s total assets of $321.0 million as of such date.  Certain Regulatory Considerations  The following is a summary of certain statutes and regulations affecting the Company and its subsidiary. This summary is qualified in its entirety by such statutes and regulations.  The Company  The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, (“BHC Act”) and as such is subject to regulation by the Federal Reserve Board. A bank holding company is required to file with the Federal Reserve Board quarterly reports and other information regarding its business operations and those of its subsidiaries. A bank holding company and its subsidiary banks are also subject to examination by the Federal Reserve Board.  The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring substantially all the assets of any bank or bank holding company or ownership or control of any voting shares of any bank or bank holding company, if, after such acquisition, it would own or control, directly or indirectly, more than five percent (5%) of the voting shares of such bank or bank holding company.    Table of Contents In approving acquisitions by bank holding companies of companies engaged in banking-related activities, the Federal Reserve Board considers whether the performance of any such activity by a subsidiary of the holding company reasonably can be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, which outweigh possible adverse effects, such as over concentration of resources, decrease of competition, conflicts of interest, or unsound banking practices.  Bank holding companies are restricted in, and subject to, limitations regarding transactions with subsidiaries and other affiliates.  In addition, bank holding companies and their subsidiaries are prohibited from engaging in certain “tie in” arrangements in connection with any extensions of credit, leases, sales of property, or furnishing of services.  The Company Subsidiary  The Company operates a single bank, namely, The Killbuck Savings Bank Company. As an Ohio state chartered commercial bank, the Bank is supervised and regulated by the ODFI, and subject to laws and regulations applicable to Ohio banks.  Capital  The Federal Reserve Board, ODFI, and FDIC require banks and holding companies to maintain minimum capital ratios.  The Federal Reserve Board adopted final “risk-adjusted” capital guidelines for bank holding companies. The guidelines became fully implemented as of December 31, 1992. The ODFI and FDIC have adopted substantially similar risk-based capital guidelines. These ratios involve a mathematical process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance sheet structure against the Company’s capital base. The rules set the minimum guidelines for the ratio of capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) at 8%. At least half of the total capital is to be composed of common equity, retained earnings, and a limited amount of perpetual preferred stock less certain goodwill items (“Tier 1 Capital”). The remainder may consist of a limited amount of subordinated debt, other preferred stock, or a limited amount of loan loss reserves.  In addition, the federal banking regulatory agencies have adopted leverage capital guidelines for banks and bank holding companies. Under these guidelines, banks and bank holding companies must maintain a minimum ratio of three percent (3%) Tier 1 Capital (as defined for purposes of the year-end 1992 risk-based capital guidelines) to total assets. The Federal Reserve Board has indicated, however, that banking organizations that are experiencing or anticipating significant growth, are expected to maintain capital ratios well in excess of the minimum levels.  Regulatory authorities may increase such minimum requirements for all banks and bank holding companies or for specified banks or bank holding companies. Increases in the minimum required ratios could adversely affect the Company and the Bank, including their ability to pay dividends.  At December 31, 2005, the Company’s respective total and Tier 1 risk-based capital ratios and leverage ratios exceeded the minimum regulatory requirements. See Note 17 in the audited consolidated financial statements included in the Annual Report and incorporated herein by reference in the report as Exhibit 13.    Table of Contents Additional Regulation  The Bank is also subject to federal regulation as to such matters as required reserves, limitation as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuance or retirement of their own securities, limitations upon the payment of dividends and other aspects of banking operations. In addition, the activities and operations of the Bank are subject to a number of additional detailed, complex and sometimes overlapping laws and regulations. These include state usury and consumer credit laws, state laws relating to fiduciaries, the Federal Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the Community Reinvestment Act, anti-redlining legislation and antitrust laws.  Dividend Regulation  The ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by the Bank. Generally, the Bank may not declare a dividend, without the approval of the ODFI, if the total of dividends declared in a calendar year exceeds the total of its net profits for that year combined with its retained profits of the preceding two years.  Government Policies and Legislation  The policies of regulatory authorities, including the ODFI, Federal Reserve Board, FDIC and the Depository Institutions Deregulation Committee, have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. An important function of the Federal Reserve System is to regulate aggregate national credit and money supply through such means as open market dealings in securities, establishment of the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. Policies of these agencies may be influenced by many factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and fiscal policies of the United States government.  Financial Services Modernization Act of 1999  Under the Gramm-Leach-Bliley Act (better known as the Financial Services Modernization Act of 1999), bank holding companies can become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.  The Financial Services Modernization Act defines “financial in nature” to include”        •   securities underwriting, dealing and market making;        •   sponsoring mutual funds and investment companies;        •   insurance underwriting and agency;        •   merchant bank activities and activities that the Federal Reserve Board has determined to be closely relating to banking.    Table of Contents In addition, a financial holding company may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company has a Community Reinvestment Act rating of satisfactory or better.  The United States Congress has periodically considered and adopted legislation, such as the Gramm-Leach-Bliley Act, which has resulted in further deregulation of both banks and other financial institutions, including mutual funds, securities brokerage firms and investment banking firms. No assurance can be given as to whether any additional legislation will be adopted or as to the effect such legislation would have on the business of the Bank or the Company.  Deposit Insurance  The Federal Deposit Insurance Company Improvement Act of 1991 (“FDICIA”) requires federal bank regulatory authorities to take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.  As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The amount each institution pays for FDIC deposit insurance coverage is determined in accordance with a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Institutions classified as well capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered substantial supervisory concerns pay the highest premium. Because the Bank is presently “well capitalized” it pays the minimum deposit insurance premiums.  The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of the Bank.  USA Patriot Act  In October 2001, the President signed into law the USA Patriot Act, which strengthens anti-money laundering provisions of the Bank Secrecy Act. The Act requires financial institutions to establish certain procedures to be able to identify and verify the identity of its customers. Specifically, the new rules, developed by the Secretary of the Treasury, require that the Bank have procedures in place to:        •   Verify the identity of persons applying to open an account,        •   Ensure adequate maintenance of the records used to verify a person’s identity, and        •   Determine whether a person is on any U.S. governmental agency list of known or suspected terrorists or a terrorist organization  The Bank has implemented the required internal controls to ensure proper compliance with the USA Patriot Act.  Sarbanes-Oxley Act of 2002  The Sarbanes-Oxley Act, signed into law July 30, 2002, was intended to bolster public confidence in the nation’s capital markets by imposing new duties and penalties for non-compliance on public companies and their executives, directors, auditors, attorneys and securities analysts. Some of the more significant aspects of the act include:        •   Corporate Responsibility for Financial Reports – requires Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) to personally certify and be accountable for their Corporations’ financial records and accounting and internal controls.    Table of Contents     •   Management Assessment of Internal Controls – requires auditors to certify the Corporations’ underlying controls and processes that are used to compile the financial results.        •   Real-time Issuer Disclosures – require that companies provide real-time disclosures of any events that may affect a firm’s stock price or financial performance within a 48-hour period.        •   Criminal Penalties for Altering Documents – provides severe penalties for “whoever knowingly alters, destroys, mutilates” any record of document with intent to impede an investigation. Penalties include monetary fines and prison time.  The act also imposes requirements for corporate governance, auditor independence and accounting standards, executive compensation, insider loans and whistleblower protection. As a result of Sarbanes-Oxley, Killbuck Bancshares, Inc. adopted a Code of Business Conduct and Ethics applicable to its CEO, CFO and Controller, which meets the requirements of Sarbanes-Oxley, to supplement its long-standing Code of Ethics, which applies to all employees.  Proposed Legislation  There have been proposed a number of legislative and regulatory proposals designed to strengthen the federal deposit insurance system and to improve the overall financial stability of the U.S. banking system. It is impossible to predict whether or in what form these proposals may be adopted in the future, and if adopted, what their effect would be on the Company or Bank.    Table of Contents Monetary Policies  The earnings of the Company are dependent upon the earnings of its wholly owned subsidiary bank. The earnings of the subsidiary bank are affected by the policies of regulatory authorities, including the Ohio Division of Financial Institutions, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. The policies and regulations of the regulatory agencies have had and will continue to have a significant effect on deposits, loans and investment growth, as well as the rate of interest earned and paid, and therefore will affect the earnings of the subsidiary bank and the Company in the future, although the degree of such impact cannot accurately be predicted.  Securities Laws and Compliance  As of June 30, 1998, the Company’s common stock was registered with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“1934 Act”). This registration requires ongoing compliance with the 1934 Act and its periodic filing requirements as well as a wide range of Federal and State securities laws. These requirements include, but are not limited to, the filing of annual, quarterly and other reports with the SEC, certain requirements as to the solicitation of proxies from shareholders as well as other proxy rules, and compliance with the reporting requirements and “short-swing” profit rules imposed by section 16 of the 1934 Act.   Item 1A Risk Factors  The following discusses risks that management believes are specific to our business and could have a negative impact on the Bank’s financial performance. When analyzing an investment in the Bank, the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report should be carefully considered. This list should not be viewed as comprehensive and may not include all risks that may effect the financial performance of the Bank:  Interest Rate Risk  The Bank’s profitability is largely a function of the spread between the interest rates earned on earning assets and the interest rates paid on deposits and other interest-bearing liabilities. Like most financial institutions, the Bank’s net interest income and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the Federal government, that influence market interest rates and the Bank’s ability to respond to changes in such rates. At any given time, the Bank’s assets and liabilities may be such that they are affected differently by a change in interest rates. As a result, an increase or decrease in rates, the length of loan terms or the mix of adjustable- and fixed- rate loans or investment securities in the Bank’s portfolio could have a positive or negative effect on its net income, capital and liquidity. Although management believes it has implemented strategies and guidelines to reduce the potential effects of changes in interest rates on results of operations, any substantial and prolonged change in market interest rates could adversely affect operating results.  Credit Risk  As a lender, the Bank is exposed to the risk that its borrowers may be unable to repay their loans and that any collateral securing the payment of their loans may not be sufficient to assure repayment in full. Credit losses are inherent in the lending business and could have a material adverse effect on the operating results of the Bank. Adverse changes in the economy or business conditions, either nationally or in the Bank’s market areas, could increase credit related losses and expenses and/or limit growth. Substantially all of the Bank’s loans are to businesses and individuals in its limited geographic area and any economic decline in this market could impact the Bank adversely. The Bank makes various assumptions and judgments about the collectibility of its loan portfolio and provides an allowance for loan losses based on a number of factors. If these assumptions are incorrect, the allowance for loan losses may not be sufficient to cover losses, thereby having an adverse effect on operating results, and may cause the Bank to increase the allowance in the future by increasing the provision for loan losses. The Bank has adopted underwriting and credit monitoring procedures and credit policies that management believes are appropriate to control these risks, however, such policies and procedures may not prevent unexpected losses that could have a material adverse affect on the Bank’s financial condition or results of operations.    Table of Contents Impairment Risk  The Bank regularly purchases U.S. Government agency debt securities, U.S. Government agency issued mortgage-backed securities, State and Political Subdivisions’ debt securities, corporate debt securities and equity securities. The Bank is exposed to the risk that the issuers of these securities may experience significant deterioration in credit quality which could impact the market value of the issue. The Bank periodically evaluates its investments to determine if market value declines are other-than-temporary. Once a decline is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.  Competition  The financial services industry is highly competitive with competition for attracting and retaining deposits and making loans coming from other banks and savings institutions, credit unions, mutual fund companies, insurance companies and other non-bank businesses. Some of the Bank’s competitors are much larger in terms of total assets and market capitalization, have a higher lending limit, and have greater access to capital and funding. In light of this, the Bank’s ability to continue to compete effectively is dependent upon its ability to maintain and build relationships through top quality service.  Government Regulation and Supervision  The banking industry is heavily regulated under both Federal and state law. Banking regulations, designed primarily for the safety of depositors, may limit a financial institution’s growth and the return to its investors, by restricting such activities as the payment of dividends, mergers with or acquisitions by other institutions, expansion of branch offices and the offering of securities. The Bank is also subject to capitalization guidelines established by Federal law and could be subject to enforcement actions to the extent that its subsidiary bank is found, by regulatory examiners, to be undercapitalized. It is improbable to predict what changes, if any, will be made to existing Federal and state legislation and regulations or the effect that such changes may have on the Bank’s future business and earnings prospects. Any substantial changes to applicable laws or regulations could also subject the Bank to additional costs, limit the types of financial services and products it may offer, and inhibit its ability to compete with other financial service providers.  Internal Controls and Procedures  Management diligently reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. This system is designed to provide reasonable, not absolute, assurances that the objectives comply with appropriate regulatory guidance; any undetected circumvention of these controls could have a material adverse impact on the Bank’s financial condition and results of operations.  Litigation  Although there is currently no litigation to which the Bank is the subject, future litigation that arises during the normal course of business could be material and have a negative impact on the Bank’s earnings. Future litigation or changes in current litigation could also adversely impact the reputation of the Bank in the communities that it serves.  Attracting and Retaining Skilled Personnel  Attracting and retaining key personnel is critical to the Bank’s success, and difficulty finding qualified personnel could have a significant impact on the Bank’s business due to the lack of required skill sets and years of industry experience. Management is cognizant of these risks and succession planning is built into the long-range strategic planning process. The Bank currently has employment agreements with its executive officers.    Table of Contents Goodwill  When the Bank acquired the Danville Office, a portion of the purchase price was allocated to goodwill and other indentifiable intangible assets. The amount of the purchase price which was allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. Under current accounting standards, if the Bank determines goodwill or intangible assets are impaired, it is required to write down the carrying value of these assets. The Bank cannot provide assurance that it will not be required to take an impairment charge in the future. Any impairment charge would have a negative effect on its stockholders’ equity and current financial results.   Item 1B Unresolved Staff Comments  None    Table of Contents  Item 2 Description of Property  Properties  The Company owns no real property but utilizes the main office of the Bank. The Company’s and the Bank’s executive offices are located at 165 North Main Street, Killbuck, Ohio. The Company pays no rent or other form of consideration for the use of this facility. All offices are owned by the Bank. The Bank has seven offices located in Holmes County (1), two in Knox County (2), and one in Tuscarawas County (3). A loan production facility in Millersburg, Ohio opened in July 2003. The Bank’s total investment in office property and equipment was $10.2 million with a net book value $5.1 million at December 31, 2005. The offices are at the following locations.            Main Office: (1)   Berlin Branch (1)   Mt. Hope Branch (1)  165 North Main Street   4853 East Main Street   8115 State Rt. 241  Killbuck, Ohio 44637   Berlin, Ohio 44610   Mt. Hope, Ohio 44660      Millersburg North Branch (1)   Millersburg South Branch (1)   Millersburg Loan Annex (1)  181 N. Washington Street   1642 S. Washington Street   164 N. Clay Street  Millersburg, Ohio 44654   Millersburg, Ohio 44654   Millersburg, Ohio 44654      German Village Branch (1)   Sugarcreek Branch (3)   Apple Valley Branch (2)  4900 Oak Street   1035 W. Main Street   21841 Plank Road  Berlin, Ohio 44610   Sugarcreek, Ohio 44681   Howard, Ohio 43028      Danville Branch (2)        701 S. Market Street        Danville, Ohio 43014         Item 3 Legal Proceedings  Neither the Bank nor the Company is involved in any material legal proceedings. The Bank, from time to time, is a party to litigation, which arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial position, results of operation, or liquidity of the Bank or the Company.  In addition, no material proceedings are known to be contemplated by governmental authorities against the Bank or the Company or any of their properties.   Item 4 Submission of Matters to Vote of Security Holders  No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.   PART II   Item 5 Market for Registrant’s Common Stock and Related Stockholder Matters  As of December 31, 2005, the Company had 1,023 shareholders of record, as calculated by excluding individual participants in securities positions listings, who collectively held 647,760 of the 1,000,000 authorized shares of the Company’s no par value stock.    Table of Contents There is no established public trading market for the Company’s common stock and the shares of the Company are not listed on any exchange. Sale price information is based on information reported to the Company by individual buyers and sellers of the Company stock. The following table summarizes the high and low prices and dividend information for 2005 and 2004. Cash dividends are paid on a semi-annual basis.                    Quarter Ended    High    Low    CashDividendsPaid  2005   March 31    $ 98.75    $ 97.64      N/A     June 30      100.06      98.85    $ 1.05     September 30      102.44      100.80      N/A     December 31      103.45      102.44    $ 1.15        2004   March 31    $ 95.00    $ 95.00      N/A     June 30      95.00      95.00      .95     September 30      96.69      95.00      N/A     December 31      97.38      96.38    $ 1.00  The Company has paid regular semi-annual cash dividends since it became a bank holding company in 1992, and assuming the ability to do so, it is anticipated that the Company will continue to declare regular semi-annual cash dividends.  For information on dividends per share, net income per share and ratio of dividends to net income per share see the Selected Financial Data of the Annual Report to Shareholders of Killbuck Bancshares, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13 and is incorporated herein by reference.  The ability of the Company to pay dividends will depend on the earnings of its subsidiary bank and its financial condition, as well as other factors such as market conditions, interest rates and regulatory requirements. Therefore, no assurances may be given as to the continuation of the Company’s ability to pay dividends or maintain its present level of earnings. For a discussion on subsidiary dividends see Note 16 to the audited Consolidated Financial Statements of the Annual Report to Shareholders of Killbuck Bancshares, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13 and is incorporated herein by reference.  The common stock of the Company is not subject to any redemption provisions or restrictions on alienability. The common stock is entitled to share pro rata in dividends and in distributions in the event of dissolution or liquidation. There are not any options, warrants, privileges nor other rights with respect to Company stock at the present time, nor are any such rights proposed to be issued.    Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds  None  ISSUER PURCHASES OF EQUITY SECURITIES                  Period     (a) TotalNumber ofShares (or Units)Purchased     (b) Average Price Paid per Share(or Unit)    (c) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans or Programs    (d) Maximum Number(or Approximate DollarValue) of Shares (orUnits) that May Yet BePurchased Under thePlans or Programs   January 1 – 31, 2005    —        —      N/A    N/A   February 1 – 29, 2005    458    $ 97.64    N/A    N/A   March 1 – 31, 2005    600    $ 98.30    N/A    N/A   April 1 – 30, 2005    —        —      N/A    N/A   May 1 – 31, 2005    —        —      N/A    N/A   June 1 – 30, 2005    340    $ 98.85    N/A    N/A   July 1 – 31, 2005    1,750    $ 100.06    N/A    N/A   August 1 – 31, 2005    2,000    $ 100.80    N/A    N/A   September 1 – 30, 2005    939    $ 101.69    N/A    N/A   October 1 – 31, 2005    —        —      N/A    N/A   November 1 – 30, 2005    539    $ 103.45    N/A    N/A   December 1 – 31, 2005    3,100    $ 102.44    N/A    N/A   Total (1)    9,726    $ 101.05    N/A    N/A    (1) 9,726 shares of common stock were purchased by Killbuck Bancshares in open-market transactions.   Item 6 Selected Financial Data  Selected Financial Data of the annual report to shareholders of Killbuck Bancshares, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13, is incorporated herein by reference.    Table of Contents  Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations  Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report to Shareholders of Killbuck Bancshares, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13, and is incorporated herein by reference. Additional statistical information noted below is provided pursuant to SEC’s Industry Guide 3, Statistical Disclosure by Bank Holding Companies.  Investment Portfolio  Book Value of Investments  Book values of investment securities at December 31 are as follows (in thousands):                            2005    2004    2003    2002    2001   Securities available for sale:                            Obligations of U.S. Government Agencies and Corporations    $ 14,307    $ 9,754    $ 17,582    $ 39,048    $ 51,420                                        Total available for sale      14,307      9,754      17,582      39,048      51,420                                        Securities held to maturity:                            Obligations of States and Political subdivisions      30,771      35,564      39,900      40,591      38,305   Corporate securities      —        451      729      987      1,498                                        Total held to maturity      30,771      36,015      40,629      41,578      39,803                                        Total    $ 45,078    $ 45,769    $ 58,211    $ 80,626    $ 91,223                                         Table of Contents MATURITY SCHEDULE OF INVESTMENTS  The following table presents the investment portfolio, the weighted average yield and maturities at December 31, 2005 (dollars in thousands):                                              Within three months     After three months butWithin one year     After one year butWithin five years     After five butWithin ten years     After 10 years             Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Total   Available for Sale (1) Obligations of U.S. Government Agencies and Corporations    $ —      0.00 %   $ 1,984    3.20 %   $ 11,107    9.28 %   $ 819    4.39 %   $ 397    5.31 %   $ 14,307                                                                           Total    $ —      0.00 %   $ 1,984    3.20 %   $ 11,107    9.28 %   $ 819    4.39 %   $ 397    5.31 %   $ 14,307                                                                           Held to Maturity Obligations of States and Political subdivisions (2)    $ —      0.00 %   $ 3,571    4.24 %   $ 14,706    4.37 %   $ 12,298    4.42 %   $ 196    3.35 %   $ 30,771                                                                             Total    $ —      0.00 %   $ 3,571    4.24 %   $ 14,706    4.37 %   $ 12,298    4.42 %   $ 196    3.35 %   $ 30,771                                                                              (1) The weighted average yield has been computed using the historical amortized cost for available for sale securities.    (2) Weighted average yields on nontaxable obligations have been computed based on actual yield stated on the security.  Excluding holdings of U.S. Treasury and other agencies and corporations of the U.S. Government, there were no investments in securities of any one issuer that exceeded 10% of the Bank’s shareholder equity at December 31, 2005.    Table of Contents TYPES OF LOANS  The following table presents the composition of the loan portfolio and the percentage of loans by type as follows (dollars in thousands):                                           December 31,         2005     2004     2003     2002     2001         Amount    % ofTotal Loans     Amount    % ofTotal Loans     Amount     % of Total Loans     Amount     % of Total Loans     Amount     % of Total Loans     Real estate-residential    $ 90,976    43.5 %   $ 97,811    45.0 %   $ 88,649    44.0 %   $ 73,143    41.8 %   $ 55,812    36.7 %   Real estate-farm      14,550    7.0       12,309    5.6       12,298    6.1       9,108    5.2       3,377    2.2     Real estate-commercial      47,312    22.7       47,226    21.8       42,090    20.8       35,005    20.0       24,117    15.9     Real estate-construction      9,447    4.5       11,000    5.1       10,978    5.4       11,812    6.7       2,937    1.9     Commercial and other      38,399    18.4       40,752    18.8       38,269    19.0       35,160    20.1       37,205    24.4     Consumer and credit card      8,217    3.9       8,075    3.7       9,413    4.7       10,929    6.2       28,710    18.9                                                                            $ 208,901    100.0 %   $ 217,173    100.0 %   $ 201,697    100.0 %   $ 175,157    100.0 %   $ 152,158    100.0 %                                                                        Table of Contents The largest category of loans comprising the Bank’s loan portfolio is residential real estate loans. These loans are primarily single-family residential real estate loans secured by a first mortgage on the dwelling. The risks associated with these loans are primarily the risk of default in repayment and inadequate collateral. Real estate commercial loans represent the second largest category and include development loans as well as investment commercial real estate loans. These loans have risks, which include the risk of default in the repayment of principal and inadequate collateral as well as the risk of cash flow interruption due to, in the case of rental real estate, the inability to obtain or collect adequate rental rates. The next largest loan segment of the Bank’s loan portfolio is the commercial and other category. The loans comprising this category represent loans to business interest located primarily within the Bank’s defined market areas, with no significant industry concentration. Commercial loans include both secured and unsecured loans. The risks associated with these loans are principally the risk in default of the repayment of principal resulting from economic problems of the commercial customer, economic downturn affecting the market in general and in the case of secured loans, inadequate collateral.  MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE  The following table presents maturity distribution and interest rate sensitivity of real estate – commercial, real estate - construction and commercial and other loans at December 31, 2005 (dollars in thousands):                         Within 1Year    After 1 YearWithin 5Years    After 5 Years    Total   Real estate – commercial    $ 44,603    $ 2,426    $ 283    $ 47,312   Real estate – construction      7,582      1,006      859      9,447   Commercial and other      31,431      6,759      209      38,399                                    $ 83,616    $ 10,191    $ 1,351    $ 95,158                                 Fixed interest rates    $ 5,516    $ 8,252    $ 1,351    $ 15,119   Variable interest rates      78,100      1,939      —        80,039                                    $ 83,616    $ 10,191    $ 1,351    $ 95,158                                  Table of Contents RISK ELEMENTS  Loans are subject to ongoing periodic monitoring by management and the board of directors. A loan is classified as nonaccrual when, in the opinion of management, there are doubts about collectibility of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deterioration of the borrower. At December 31, 2005, all of the non-accrual loans are comprised of 13 loans. The two commercial loans total approximately $158,000 secured by equipment and real estate. Nine residential loans of approximately $463,000 are secured by real estate. The remaining two loans are consumer loans of approximately $11,000 secured by automobiles. On the commercial real estate and equipment loan, which became delinquent in the third quarter of 2004, the real estate was transferred to Other Real Estate Owned pending sale. The collateral was not sold by the end of the fiscal year as anticipated; the sale was completed the first quarter of 2006. The following table presents information concerning nonperforming assets including nonaccrual loans, loans 90 days or more past due, renegotiated loans, other real estate and repossessed assets at December 31, (dollars in thousands).    Table of Contents                              December 31,         2005     2004     2003     2002     2001     Loans on nonaccrual basis    $ 632     $ 1,095     $ 220     $ 149     $ 144     Loans past due 90 days or more      —         —         1       —         125     Renegotiated loans      —         —         —         —         —                                                  Total nonperforming loans      632       1,095       221       149       269     Other real estate      700       —         —         —         —       Repossessed assets      —         —         —         —         —                                                  Total nonperforming assets    $ 1,332     $ 1,095     $ 221     $ 149     $ 269                                                Nonperforming loans as a percent of total loans      .30 %     .50 %     .11 %     .08 %     .18 %                                              Nonperforming loans as a percent of total assets      .21 %     .37 %     .08 %     .05 %     .10 %                                              Nonperforming assets as a percent of total assets      .45 %     .37 %     .08 %     .05 %     .10 %                                               Table of Contents The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was approximately $18,600 and the amount of interest income that was recognized was $0 for the year ended December 31, 2005.  There are no loans as of December 31, 2005, other than those disclosed above, where known information about the borrower caused management to have serious doubts about the borrower’s ability to comply with their contractual repayment obligations. There are no concentrations of loans to borrowers engaged in similar activities, which exceed 10% of total loans that management is aware of. Based upon the ongoing quarterly review and assessment of credit quality, management is not aware of any trends or uncertainties related to any accounts which might have a material adverse effect on future earnings, liquidity or capital resources.  There are no other interest bearing assets that would be subject to disclosure as either nonperforming or impaired if such interest bearing assets were loans.  LOAN LOSS EXPERIENCE  Management makes periodic provisions to the allowance for loan losses to maintain the allowance at an acceptable level commensurate with the credit risks inherent in the loan portfolio. There can be no assurances, however, that additional provisions will not be required in future periods. The following table presents a summary of loan losses by loan type and changes in the allowance for loan losses for the years ended December 31, (dollars in thousands):    Table of Contents                              Year Ended December 31,         2005     2004     2003     2002     2001     Allowance for loan losses at beginning of year    $ 2,646     $ 2,702     $ 2,326     $ 2,261     $ 2,359     Provision charged to expense      377       225       390       210       262     Charge-offs:                             Real estate-residential      4       17       6       18       —       Real estate-farm      —         —         —         —         —       Real estate-commercial      500       —         —         —         —       Real estate-construction      —         —         —         —         —       Commercial and other      228       311       16       43       122     Consumer and credit card      52       28       99       262       364                                                Total charge-offs      784       356       121       323       486                                                Recoveries:                             Real estate-residential      —         1       —         —         —       Real estate-farm      —         —         —         —         —       Real estate-commercial      —         —         —         —         —       Real estate-construction      —         —         —         —         —       Commercial and other      25       13       19       14       21     Consumer and credit card      49       61       88       164       105                                                Total recoveries      74       75       107       178       126                                                Net charge-offs      710       281       14       145       360                                                Allowance for loan losses at end of period    $ 2,313     $ 2,646     $ 2,702     $ 2,326     $ 2,261                                                Total loans outstanding    $ 208,901     $ 217,173     $ 201,697     $ 175,157     $ 152,158                                                Average loans outstanding    $ 215,486     $ 213,463     $ 187,554     $ 162,413     $ 153,488                                                Allowance for loan losses as a percent of total loans      1.11 %     1.22 %     1.34 %     1.33 %     1.49 %          Net charge-offs as a percent of average loans      .33 %     .13 %     .01 %     .09 %     .24 %    Table of Contents The Bank reviews the adequacy of its allowance for loan losses on a quarterly basis. In determining the adequacy of its allowance account the Bank makes general allocations based upon loan categories, nonaccrual, past due and classified loans. After general allocations, the Bank makes specific allocations for individual credits. The Bank has determined that the reserve is adequate as of December 31, 2005, based upon its analysis and experience. However, there can be no assurance that the current allowance for loan losses will be adequate to absorb all future loan losses.  The following table presents management’s estimate of the allocation of the allowance for loan losses among the loan categories, although the entire allowance balance is available to absorb any actual charge-offs that may occur, along with the percentage of loans in each category to total loans for the years ended December 31 (dollars in thousands):                                           2005     2004     2003     2002     2001         Allowance    % ofLoanstoTotalLoans     Allowance     % ofLoansto TotalLoans     Allowance    % ofLoanstoTotalLoans     Allowance    % ofLoanstoTotalLoans     Allowance    % ofLoanstoTotalLoans     Real estate – residential    $ 323    43.5 %   $ 478    45.0 %   $ 432    44.0 %   $ 338    41.8 %   $ 254    36.7 %   Real estate – farm      —      7.0       58    5.7       124    6.1       60    5.2       74    2.2     Real estate – commercial      257    22.7       755    21.7       704    20.8       376    20.0       373    15.9     Real estate – construction      —      4.5       —      5.1       —      5.4       —      6.7       —      1.9     Commercial and other loans      1,598    18.4       1,034    18.8       1,038    19.0       967    20.1       964    24.4     Consumer and credit loans      135    3.9       321    3.7       404    4.7       585    6.2       596    18.9                                                                            $ 2,313    100.0 %   $ 2,646    100.00 %   $ 2,702    100.0 %   $ 2,326    100.0 %   $ 2,261    100.0 %                                                                        Table of Contents CONTRACTUAL OBLIGATIONS  The following table presents, as of December 31, 2005, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the financial statements for December 31, 2005, attached hereto as Exhibit 13 to this Form 10K.                     (In thousands)    NoteReference    One Yearor Less    One toThreeYears    Three toFiveYears    Over FiveYears    Total   Borrowed funds    9, 10    6,329    1,362    1,221    687    9,599   Certificates of Deposit    8    66,892    31,212    11,787    19    109,910   Operating Leases    13    19    38    39    294    390   Deposits without a stated maturity    —      140,439    —      —      —      140,439  The Company has entered into an operating lease to lease 1,600 square feet with a drive-thru facility within the German Village Store in Berlin, Ohio beginning in April 2004 and expiring in the year 2024 with an additional ten year option.  COMMITMENTS  The following table details the amounts and expected maturities of significant commitments as of December 31, 2005. Further discussion of these commitments is included in Note 15 to the financial statements as of December 31, 2004, attached hereto as Exhibit 13 to this Form 10K.                   (In thousands)    One Yearor Less    One toThreeYears    Three toFiveYears    Over FiveYears    Total   Commitments to extent credit                       Commercial    15,617    2,561    —      —      18,178   Residential real estate    4,056    23    —      —      4,079   Revolving home equity    —      —      —      11,012    11,012   and credit card lines    1,742    —      —      —      1,742   Standby letters of credit    730    —      —      —      730    Table of Contents  Item 7A Quantitative and Qualitative Disclosures About Market Risk  The Bank’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. Because of the nature of the Bank’s operations, the Bank is not subject to currency exchange or commodity price risk and, since the Bank has no trading portfolio, it is not subject to trading risk. The Bank’s loan portfolio, concentrated primarily within the surrounding market area, is subject to risks associated with the local economy. Since all of the interest earning assets and interest bearing liabilities are located at the Bank, all of the interest rate risk lies at the Bank level. As a result, all significant interest rate risk management procedures are performed at the Bank level.  The Bank actively manages interest rate sensitivity and asset/liability products through an asset/liability management committee. The principle purposes of asset-liability management are to maximize current net interest income while minimizing the risk to future earnings of negative fluctuations in net interest margin and to insure adequate liquidity exists to meet operational needs.  In an effort to reduce interest rate risk and protect itself from the negative effects or rapid or prolonged changes in interest rates, the Bank has instituted certain asset and liability management measures, including underwriting long-term fixed rate loans that are saleable in the secondary market, offering longer term deposit products and diversifying the loan portfolio into shorter term consumer and commercial business loans. In addition, since the mid-1980’s, the Bank has originated adjustable-rate loans and as of December 31, 2005, they comprised approximately 84.6% of the total loan portfolio.  One of the principal functions of the Company’s asset/liability management program is to monitor the level to which the balance sheet is subject to interest rate risk. The goal of this program is to manage the relationship between interest-earning assets and interest-bearing liabilities to minimize the fluctuations in the net interest spread and achieve consistent growth in net interest income during periods of changing interest rates.  Interest rate sensitivity is measured as the difference between the volume of assets and liabilities that are subject to repricing in a future period of time. These differences are known as interest sensitivity gaps. The Bank utilizes gap management as the primary means of measuring interest rate risk. Gap analysis identifies and quantifies the Bank’s exposure or vulnerability to changes in interest rates in relationship to the Bank’s interest rate sensitivity position. A rate sensitive asset or liability is one, which is capable of being repriced (i.e., the interest rate can be adjusted or principal can be reinvested) within a specified period of time. Subtracting total rate sensitive liabilities (RSL) from total rate sensitive assets (RSA) within specified time horizons nets the Bank’s gap positions. These gaps reflect the Bank’s exposure to changes in market interest rates, as discussed below.    Table of Contents Because many of the Bank’s deposit liabilities are capable of being immediately repriced, the Bank offers variable rate loan products in order to help maintain a proper balance in its ability to reprice various interest bearing assets and liabilities. Furthermore, the Bank’s deposit rates are not tied to an external index. As a result, although changing market interest rates impact repricing, the Bank has retained much of its control over repricing.  The Bank conducts the rate sensitivity analysis through the use of a simulation model which also monitors earnings at risk by projecting earnings of the Bank based upon an economic forecast of the most likely interest rate movement. The model also calculates earnings of the Bank based upon what are estimated to be the largest foreseeable rate increase and the largest foreseeable rate decrease. Such analysis translates interest rate movements and the Bank’s rate sensitivity position into dollar amounts by which earnings may fluctuate as a result of rate changes. A 2% immediate increase in interest rates would increase earnings by 21.7% and a 2% immediate decrease in interest rates would decrease earnings by 21.4%.  The data included in the table that follows indicates that the Bank is asset sensitive within one year. Generally, an asset sensitive gap could negatively affect net interest income in an environment of decreasing interest rates as a greater amount of interest bearing assets could be repricing at lower rates. During times of rising interest rates, an asset sensitive gap could positively affect net interest income as rates would be increased on a larger volume of assets as compared to deposits. As a result, interest income would increase more rapidly than interest expense. A liability sensitive gap indicates that declining interest rates could positively affect net interest income as expense of liabilities would decrease more rapidly than interest income would decline. Conversely, rising rates could negatively affect net interest income as income from assets would increase less rapidly than deposit costs. Although rate sensitivity analysis enables the Bank to minimize interest rate risk, the magnitude of rate increases or decreases on assets versus liabilities may not correlate directly. As a result, fluctuations in interest spreads can occur even when repricing capabilities are perfectly matched.  It is the policy of the Bank to generally maintain a gap ratio within a range that is minus 10 percent to plus 20 percent of total assets for the time horizon of one year. When Management believes that interest rates will increase it can take actions to increase the RSA/RSL ratios. When Management believes interest rates will decline, it can take actions to decrease the RSA/RSL ratio.  During 2005, the Bank’s focus was on spreading out the maturities of time deposits within the one to five year time frame while continuing to make variable rate loans. The above strategy was implemented to better position the Bank for rate changes in a rising rate environment. The Bank’s asset/liability management focus for 2005 will include improving the Bank’s rate sensitivity gap. As noted above, at December 31, 2005 the Bank was asset sensitive; however, the cumulative rate sensitivity gap was such that the Bank’s earnings and capital should not be materially affected by the repricing of assets and liabilities due to decreases in interest rates in 2006.    Table of Contents Changes in market interest rates can also affect the Bank’s liquidity position through the impact rate changes may have on the market value of the Bank’s investment portfolio. Rapid increases in market rates can negatively impact the market values of investment securities. As securities values decline it becomes more difficult to sell investments to meet liquidity demands without incurring a loss. The Bank can address this by increasing liquid funds, which may be utilized to meet unexpected liquidity needs when a decline occurs in the value of securities.    Table of Contents The following table presents the Bank’s interest rate sensitivity gap position as of December 31, 2005 (dollars in thousands):  INTEREST RATE SENSITIVITY GAPS  (IN THOUSANDS)                                        2006     2007     2008     2009     2010     Thereafter     Total   Interest-earnings assets:                                      Loans:                                      Fixed    $ 13,951     $ 6,125     $ 3,898     $ 2,473     $ 988     $ 4,667     $ 32,102   Variable      174,834       486       1,186       13       280       —         176,799   Securities:                                      Fixed      5,555       7,344       7,336       5,858       5,275       13,710       45,078   Variable      —         —         —         —         —         —         —     Other interest-earning assets      18,395       —         —         —         —         —         18,395                                                            Total interest-earning assets      212,735       13,955       12,420       8,344       6,543       18,377       272,374                                                            Interest-bearing liabilities:                                      Demand and savings deposits      27,440       27,440       27,440       27,440       —         —         109,760   Time deposits:                                      Fixed      66,892       19,217       11,994       8,858       2,930       19       109,910   Variable      —         —         —         —         —         —         —     Short-term borrowings      3,610       —         —         —         —         —         3,610   FHLB advances      2,719       692       670       652       569       687       5,989                                                            Total interest-bearing liabilities      100,661       47,349       40,104       36,950       3,499       706       229,269                                                            Interest rate sensitivity gap      112,074       (33,394 )     (27,684 )     (28,606 )     3,044       17,671                                                                Cumulative rate sensitivity gap    $ 112,074     $ 78,680     $ 50,996     $ 22,390     $ 25,434     $ 43,105                                                                Cumulative interest rate sensitivity gap as a percent of interest earning assets      41.15 %     28.89 %     18.72 %     8.22 %     9.34 %     15.83 %                                                               Table of Contents  Item 8 Financial Statements and Supplementary Data  The report of independent auditors, consolidated financial statements and selected quarterly financial data included in the Annual Report to shareholders of Killbuck Bancshares, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13, are incorporated herein by reference.   Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  None   Item 9A. Controls and Procedures  The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President and Chief Executive Officer and Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, as of the end of the period covered by this report, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.  Disclosure controls and procedures are the control and other procedures of the Company that are designed to ensure that the information required to be disclosed by the Company in its reports or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchanges Commission’s rules and forms.  There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.   PART III   Item 10 Directors and Executive Officers of Registrant  The following table lists the Executive Officers of the Company and its subsidiary, Killbuck Savings Bank Company, and certain other information with respect to each individual, as of December 31, 2005. The information required by this item with respect to Directors and other executive officers of the Company and its subsidiary, Killbuck Savings Bank Company, is incorporated herein by reference to the information under the heading “Election of Directors and Information with Respect to Directors and Officers” in the Proxy Statement of the Company. The information required regarding disclosure of any known late filings or failure by an insider to file a report required by Section 16(a) of the Securities Exchange Act is incorporated herein by reference to the information under the heading “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Proxy Statement of the Company.             Name     Age     All Positions with Company and Bank  Luther E. Proper    56    President and CEO of the Company and the Bank since 1991. Vice-chairman of the Board of Directors of both the Company and the Bank since 2001.      Craig A. Lawhead    48    Vice president and treasurer of Company since 1992; Executive vice president of bank since 1991.      Diane S. Knowles    43    Vice president and secretary of Company since July, 2000; Senior vice president and Chief Financial Officer of Bank since June, 2000.    Table of Contents The Board of Directors has determined that the Company does not have an audit committee financial expert serving on its audit committee. However, the Board of Directors has determined that each audit committee member has sufficient knowledge in financial and auditing matters to serve on the committee. At this time, the Board does not believe it is necessary to actively search for an outside person to serve on the Board who would qualify as a financial expert.  The Company has adopted a code of ethics that applies to its principal executive, financial and accounting officers. A copy of the code of ethics is posted on the Company’s web site at http://www.killbuckbank.com/bank.cfm. In the event we make any amendment to, or grant any waiver of, a provision of the code of ethics that applies to the principal executive, financial or accounting officer, or any person performing similar functions, that requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver, the nature of and reasons for it, along with the name of the person to whom it was granted and the date, on our internet website.   Item 11 Executive Compensation  Information required by this item is incorporated herein by reference to the information under the heading “Executive Compensation and Other Information” in the Proxy Statement of the Company.   Item 12 Security Ownership of Certain Beneficial Owners and Management  Information required by this item is incorporated herein by reference to the information under the heading “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement of the Company. The Company currently has no equity compensation plans or arrangements, such as stock option or restricted stock arrangements, pursuant to which equity securities of the Company are authorized for issuance.   Item 13 Certain Relationships and Related Transactions  Information required by this item is incorporated herein by reference to the information under the heading “Certain Relationships and Related Transactions” in the Proxy Statement of the Company and in Note 4 of the Notes to Consolidated Financial statements included in the Annual Report to Shareholders for the year ended December 31, 2005, included in this report as Exhibit 13, and incorporated herein by reference.   Item 14 Principal Accountant Fees and Services  Information required by this item is incorporated here in by reference to the information under the heading “Audit Committee Report” in the Proxy Statement of the Company.    Table of Contents  PART IV   Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8  Financial Statements and Schedules  The following consolidated financial statements of Killbuck Bancshares, Inc. and subsidiary, included in the Annual Report to Shareholders for the year ended December 31, 2005, are incorporated by reference in item 8:  Report of Independent Registered Public Accounting Firm  Consolidated Balance Sheet at December 31, 2005 and 2004  Consolidated Statement of Income for the Years ended December 31, 2005, 2004 and 2003  Consolidated Statement of Changes in Shareholders’ Equity for the Years ended December 31, 2005, 2004 and 2003  Consolidated Statement of Cash Flows for the Years ended December 31, 2005, 2004 and 2003  Notes to Consolidated Financial Statements  Schedules are omitted because they are inapplicable, not required, or the information is included in the consolidated financial statements or notes thereto.    Table of Contents Exhibits  The following exhibits are filed herewith and/or are incorporated herein by reference.          ExhibitNumber    Description  3(i)    Certificate and Articles of Incorporation of Killbuck Bancshares, Inc.*     3(ii)    Code of regulations of Killbuck Bancshares, Inc.*     10.1    Employment Agreement dated April 25, 2005 between Killbuck Savings Bank Company and Luther E. Proper.     10.2    Employment Agreement dated April 25, 2005 between Killbuck Savings Bank Company and Craig A. Lawhead.     10.3    Employment Agreement dated April 25, 2005 between Killbuck Savings Bank Company and Diane S. Knowles.     12    Statement regarding computation of ratios.     13    Portions of the 2005 Annual Report to Shareholders     21    Subsidiary of the Holding Company.*     31.1    Section 302 Certification     31.2    Section 302 Certification     32.1    Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.     32.2    Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.    * Incorporated by reference to an identically numbered exhibit to the Form 10 (File No. 000-24147) filed with SEC on April 30, 1998 and subsequently amended on July 8, 1998 and July 31, 1998.    Table of Contents  SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.             Killbuck Bancshares, Inc.        (Registrant)     By:    /s/ Luther E. Proper  Luther E. Proper  President and Chief Executive Officer/Director  (Duly authorized representative)  Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.               Signatures         Description    Date        /s/ Luther E. Proper Luther E. Proper        President, Chief Executive Officer and Director   March 23, 2006        /s/ John W. Baker John W. Baker        Director   March 23, 2006        /s/ Ted Bratton Ted Bratton        Director   March 23, 2006        /s/ Richard L. Fowler Richard L. Fowler        Director   March 23, 2006        /s/ Allan R. Mast Allan R. Mast        Director   March 23, 2006        /s/ Max A. Miller Max A. Miller        Director   March 23, 2006        /s/ Dean J. Mullet Dean J. Mullet        Director   March 23, 2006        /s/ Kenneth E. Taylor Kenneth E. Taylor        Director   March 23, 2006        /s/ Michael S. Yoder Michael S. Yoder        Director   March 23, 2006        /s/ Diane S. Knowles Diane S. Knowles        Chief Financial and Chief Accounting Officer   March 23, 2006      EX-10.1 2 dex101.htm EMPLOYMENT AGREEMENT BETWEEN KILLBUCK SAVINGS BANK COMPANY AND LUTHER E. PROPER   Employment Agreement between Killbuck Savings Bank Company and Luther E. Proper   EXHIBIT 10.1  EMPLOYMENT AGREEMENT  THIS AGREEMENT entered into this 25th day of April, 2005, (“Effective Date”), by and between THE KILLBUCK SAVINGS BANK COMPANY and LUTHER E. PROPER (the “Employee”).  WHEREAS, the Employee has heretofore been employed by The Killbuck Savings Bank Company as President and is experienced in all phases of the business of The Killbuck Savings Bank Company; and  WHEREAS, the parties desire by this agreement to set forth the continuing employment relationship of The Killbuck Savings Bank Company and the Employee.  NOW, THEREFORE, it is AGREED as follows:  1. Employment. The Employee is employed in the capacity as the President of The Killbuck Savings Bank Company. The Employee shall render such administrative and management services to The Killbuck Savings Bank Company as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall promote the business of The Killbuck Savings Bank Company. The Employee’s other duties shall be such as the Board of Directors for The Killbuck Savings Bank Company may from time to time reasonably direct, including normal duties as an officer of The Killbuck Savings Bank Company.  2. Base Compensation. The Killbuck Savings Bank Company agrees to pay the Employee during the Term of this Agreement (as hereinafter defined at Section 5) a salary at the rate of at least $166,000.00 per annum, payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and Employee shall be entitled to receive annually an adjustment at such percentage or in such an amount as the Board of Directors in its sole discretion may decide at such time.  3. Discretionary Bonus. The Employee shall be entitled to participate in an equitable manner with all other senior management employees of The Killbuck Savings Bank Company in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management employees from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as declared by the Board of Directors.        4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in any plan of The Killbuck Savings Bank Company relating to pension, profit-sharing, or other retirement benefits and medical coverage or reimbursement plans that The Killbuck Savings Bank Company may adopt for the benefit of its employees. Additionally, Employee’s dependent family shall be eligible to participate in medical and dental insurance plans sponsored by The Killbuck Savings Bank Company with the cost of such premiums paid by The Killbuck Savings Bank Company.    (b) Employee Benefits; Expenses. The Employee shall be eligible to participate in any fringe benefits which may be or may become applicable to The Killbuck Savings Bank Company’s senior management employees, including by example, participation in any stock option or incentive plans adopted by the Board of Directors of The Killbuck Savings Bank Company and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Killbuck Savings Bank Company shall reimburse Employee for all reasonable out-of-pocket expenses which Employee shall incur in connection with his service for The Killbuck Savings Bank Company.  5. Term. The term of employment of Employee under this Agreement shall be for the period commencing on the Effective Date and ending one year thereafter. Additionally, on, or before, each annual anniversary date from the Effective Date, the term of employment under this Agreement shall be extended for up to an additional one year period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Terms of such Agreement shall be extended. If at any time during the original term of this Agreement, or any extension thereof, discussions or negotiations take place which, if concluded by agreement, would result in a change in control as defined in paragraph 12, the determination and resolution referred to above shall not be required, and this Agreement shall be deemed extended for a period of one (1) year beyond the then effective expiration date. Such extension shall occur whether or not such discussions or negotiations actually resulted in an agreement.  6. Loyalty; Noncompetition.  (a) The Employee shall devote his full time and attention to the performance of his employment under this Agreement. During the term of Employee’s employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interest of The Killbuck Savings Bank Company.  (b) Nothing contained in this Section 6 shall be deemed to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of The Killbuck Savings Bank Company exceeding 4.9% of said Company.  7. Standards. The Employee shall perform his duties under this Agreement in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors.  8. Vacation and Sick Leave. At such reasonable times as the Board of Directors shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, with all such voluntary absences to count as vacation time; provided that:  (a) The Employee shall be entitled to annual vacation leave in accordance with the policies as are periodically established by the Board of Directors for senior management employees of The Killbuck Savings Bank Company.        (b) Employee shall not be entitled to accumulate unused vacation from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of The Killbuck Savings Bank Company.    (c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay to absent himself voluntarily from the performance of his employment with The Killbuck Savings Bank Company for such additional periods of time and for such valid and legitimate reasons as the Board of Directors in its discretion may determine. Further, the Board of Directors shall be entitled to grant to the Employee a leave or leaves of absence with or without pay at such time or times and upon such terms and conditions as the Board of Directors in its discretion may determine.  (d) In addition, the Employee shall be entitled to an annual sick leave benefit as established by the Board of Directors for senior management employees of The Killbuck Savings Bank Company. In the event that any sick leave benefit shall not have been used during any year, such leave shall accrue to subsequent years to the extent authorized by the Board of Directors for employees of The Killbuck Savings Bank Company.  9. Termination and Termination Pay.  The Employee’s employment under this Agreement shall be terminated upon any of the following occurrences:  (a) The death of the Employee during the term of this Agreement, in which event the Employee’s estate shall be entitled to receive the compensation due the Employee through the last day of the third calendar month following the month in which Employee’s death shall have occurred.  (b) The Board of Directors may terminate the Employee’s employment at any time, but any termination by the Board of Directors other than termination for Just Cause, shall not prejudice the Employee’s right to compensation or other benefits under the Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for “Just Cause” shall include termination because of the Employee’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement.  (c) Except as provided pursuant to Section 12 herein, in the event Employee’s employment under this Agreement is terminated by the Board of Directors without Just Cause, The Killbuck Savings Bank Company shall be obligated to continue to pay the Employee the salary provided pursuant to Section 2 herein, up to the date of termination of the Term (including any renewal term) of this Agreement and the cost of Employee obtaining all health, life, disability, and other benefits which the Employee would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Employee at the date of termination of employment. Notwithstanding the foregoing, in no event except as provided pursuant to Section 12 herein shall the Employee receive payment of his salary in accordance with Section 2 herein and the cost of applicable benefits for a period of more than twelve months from the date of termination of employment without Just Cause. To receive compensation under this section, employee agrees not to be employed at any financial institution, which maintains offices within Holmes County while receiving such compensation. Such employment will result in employee forfeiting any remaining compensation as described in this section.  (d) If the Employee is removed and/or permanently prohibited from participating in the conduct of The Killbuck Savings Bank Company’s affairs by an order issued under Section 8 (e) (4) or 8 (g) (1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818 (e) (4) and (g) (1)), all obligations of The Killbuck Savings Bank Company under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected.  (e) If The Killbuck Savings Bank Company is in default (as defined in Section 3 (x) (1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.    (f) All obligations under this Agreement shall be terminated, except as to the extent determined that continuation of this Agreement is necessary for the continued operation of The Killbuck Savings Bank Company (i) by the Superintendent of the Division of Financial Institutions, or his designee, at the time that the Federal Deposit Insurance Corporation (“FDIC”) or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of The Killbuck Savings Bank Company under the authority contained in Section 13 (c) of FDIA; or (ii) by the Superintendent of the Division of Financial Institutions, or his designee, at the time that the Superintendent of the Division of Financial Institutions, or his designee, approves a supervisory merger to resolve problems related to operation of The Killbuck Savings Bank Company or when The Killbuck Savings Bank Company is determined by the Superintendent of the Division of Financial Institutions to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.  (g) The voluntary termination by the Employee during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 12 (b) in which case the Employee shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination.  (h) Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement or otherwise, shall be subject to and conditioned upon compliance with 12 USC Sec. 1828 (k) and any regulations promulgated thereunder.  10. Suspension of Employment. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of The Killbuck Savings Bank Company’s affairs by a notice served under Section 8 (e) (3) or (g) (1) of the FDIA (12 U.S.C. 1818 (e) (3) and (g) (1)), The Killbuck Savings Bank Company’s obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, The Killbuck Savings Bank Company may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate any of its obligations which were suspended.        11. Disability. If the Employee shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Employee shall nevertheless continue to receive the compensation and benefits provided under the terms of this Agreement in accordance with The Killbuck Savings Bank Company’s disability policy, as in effect on the date he becomes disabled. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Employee during such period under the provisions of disability insurance coverage in effect for The Killbuck Savings Bank Company’s employees. Thereafter, Employee shall be eligible to receive benefits provided by The Killbuck Savings Bank Company under the provisions of disability insurance coverage in effect for The Killbuck Savings Bank Company’s employees. Upon returning to active full-time employment, the Employee’s full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Employee returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 2 of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties at the discretion of the Board of Directors.    12. Change in Control.  (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee’s employment during the Term of this Agreement following any change in control of The Killbuck Savings Bank Company, absent Just Cause, Employee shall be paid an amount equal to the product of 2.99 times the Employee’s “base amount” as defined in Section 280G (b) (3) of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations promulgated thereunder. Said sum shall be paid, at the option of employee, either in one (1) lump sum within thirty (30) days of such termination discounted to the present value of such payment using as the discount rate the “prime rate” as published in the Wall Street Journal Eastern Edition as of the date of such payment minus 100 basis points, or in periodic payments over the next 36 months or the remaining term of this Agreement whichever is less, as if Employee’s employment had not been terminated, and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitle to receive under Section 9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by The Killbuck Savings Bank Company shall be deemed an “excess parachute payment” in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term “control” shall refer to the ownership, holding or power to vote more than 25% of the Holding Company’s voting stock, the control of the election of a majority of The Killbuck Savings Bank Company’s directors, or the exercise of a controlling influence over the management or policies of The Killbuck Savings Bank Company by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934. The term “person” means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein.        (b) Notwithstanding any other provision of this Agreement to the contrary, Employee may voluntarily terminate his employment during the Term of this Agreement following a change in control of The Killbuck Savings Bank Company, and Employee shall thereupon be entitled to receive the payment described in Section 12(a) of this Agreement, upon the occurrence, or within one hundred eighty (180) days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing: (i) if Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee’s primary office as of the signing of this Agreement; (ii) if in the organizational structure of The Killbuck Savings Bank Company, Employee would be required to report to a person or persons other than the Board of The Killbuck Savings Bank Company; (iii) if The Killbuck Savings Bank Company should fail to maintain Employee’s base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit, stock option and retirement plans, except to the extent that such reduction in benefit programs is part of an overall adjustment in benefits for all employees of The Killbuck Savings Bank Company and does not disproportionately adversely impact the Employee; (iv) if Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; (v) if Employee would not be elected or re-elected to the Board of Directors of The Killbuck Savings Bank Company or (vi) if Employee’s responsibilities or authority have in any way been diminished or reduced.    13. Successors and Assigns.  (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of The Killbuck Savings Bank Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of The Killbuck Savings Bank Company.  (b) Since The Killbuck Savings Bank Company is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of The Killbuck Savings Bank Company.  14. Amendments. No amendments or additions to this Agreement shall be binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided.  15. Applicable Law. This Agreement shall be governed by all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Ohio, except to the extent that Federal law shall be deemed to apply.  16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association (“AAA”) nearest to the home office of The Killbuck Savings Bank Company, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The Killbuck Savings Bank Company shall reimburse Employee for all reasonable costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, following the delivery of the decision of the arbitrator finding in favor of the Employee. Further, the settlement of the dispute to be approved by the Board of Directors of The Killbuck Savings Bank Company may include a provision for the reimbursement by The Killbuck Savings Bank Company to the Employee for all reasonable costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, or the Board of Directors of The Killbuck Savings Bank Company may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board of Directors following settlement of the dispute.  18. Entire Agreement. This Agreement together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire Agreement between the parties hereto subject to the Laws of the State of Ohio.    IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written.               Signed in presence of      THE KILLBUCK SAVINGS BANK COMPANY              /s/ Kenneth E. Taylor      By: 1.    /s/ Richard L. Fowler  Witness as to 1         Richard L. Fowler, Chairman           Board of Directors   /s/ Michael S. Yoder           Witness as to 1                     EMPLOYEE        /s/ Kenneth E. Taylor      By: 2.    /s/ Luther E. Proper  Witness as to 2         Luther E. Proper, President              /s/ Michael S. Yoder           Witness as to 2               EX-10.2 3 dex102.htm EMPLOYMENT AGREEMENT BETWEEN KILLBUCK SAVINGS BANK COMPANY AND CRAIG A. LAWHEAD   Employment Agreement between Killbuck Savings Bank Company and Craig A. Lawhead   EXHIBIT 10.2  EMPLOYMENT AGREEMENT  THIS AGREEMENT entered into this 25th day of April, 2005, (“Effective Date”), by and between THE KILLBUCK SAVINGS BANK COMPANY and CRAIG A. LAWHEAD (the “Employee”).  WHEREAS, the Employee has heretofore been employed by The Killbuck Savings Bank Company as Exec. Vice President and is experienced in all phases of the business of The Killbuck Savings Bank Company; and  WHEREAS, the parties desire by this agreement to set forth the continuing employment relationship of The Killbuck Savings Bank Company and the Employee.  NOW, THEREFORE, it is AGREED as follows:  1. Employment. The Employee is employed in the capacity as the Exec. Vice President of The Killbuck Savings Bank Company. The Employee shall render such administrative and management services to The Killbuck Savings Bank Company as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall promote the business of The Killbuck Savings Bank Company. The Employee’s other duties shall be such as the Board of Directors for The Killbuck Savings Bank Company may from time to time reasonably direct, including normal duties as an officer of The Killbuck Savings Bank Company.  2. Base Compensation. The Killbuck Savings Bank Company agrees to pay the Employee during the Term of this Agreement (as hereinafter defined at Section 5) a salary at the rate of at least $111,000.00 per annum, payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and Employee shall be entitled to receive annually an adjustment at such percentage or in such an amount as the Board of Directors in its sole discretion may decide at such time.  3. Discretionary Bonus. The Employee shall be entitled to participate in an equitable manner with all other senior management employees of The Killbuck Savings Bank Company in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management employees from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as declared by the Board of Directors.        4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in any plan of The Killbuck Savings Bank Company relating to pension, profit-sharing, or other retirement benefits and medical coverage or reimbursement plans that The Killbuck Savings Bank Company may adopt for the benefit of its employees. Additionally, Employee’s dependent family shall be eligible to participate in medical and dental insurance plans sponsored by The Killbuck Savings Bank Company with the cost of such premiums paid by The Killbuck Savings Bank Company.    (b) Employee Benefits; Expenses. The Employee shall be eligible to participate in any fringe benefits which may be or may become applicable to The Killbuck Savings Bank Company’s senior management employees, including by example, participation in any stock option or incentive plans adopted by the Board of Directors of The Killbuck Savings Bank Company and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Killbuck Savings Bank Company shall reimburse Employee for all reasonable out-of-pocket expenses which Employee shall incur in connection with his service for The Killbuck Savings Bank Company.  5. Term. The term of employment of Employee under this Agreement shall be for the period commencing on the Effective Date and ending one year thereafter. Additionally, on, or before, each annual anniversary date from the Effective Date, the term of employment under this Agreement shall be extended for up to an additional one year period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Terms of such Agreement shall be extended. If at any time during the original term of this Agreement, or any extension thereof, discussions or negotiations take place which, if concluded by agreement, would result in a change in control as defined in paragraph 12, the determination and resolution referred to above shall not be required, and this Agreement shall be deemed extended for a period of one (1) year beyond the then effective expiration date. Such extension shall occur whether or not such discussions or negotiations actually resulted in an agreement.  6. Loyalty; Noncompetition.  (a) The Employee shall devote his full time and attention to the performance of his employment under this Agreement. During the term of Employee’s employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interest of The Killbuck Savings Bank Company.  (b) Nothing contained in this Section 6 shall be deemed to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of The Killbuck Savings Bank Company exceeding 4.9% of said Company.  7. Standards. The Employee shall perform his duties under this Agreement in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors.  8. Vacation and Sick Leave. At such reasonable times as the Board of Directors shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, with all such voluntary absences to count as vacation time; provided that:  (a) The Employee shall be entitled to annual vacation leave in accordance with the policies as are periodically established by the Board of Directors for senior management employees of The Killbuck Savings Bank Company.        (b) Employee shall not be entitled to accumulate unused vacation from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of The Killbuck Savings Bank Company.    (c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay to absent himself voluntarily from the performance of his employment with The Killbuck Savings Bank Company for such additional periods of time and for such valid and legitimate reasons as the Board of Directors in its discretion may determine. Further, the Board of Directors shall be entitled to grant to the Employee a leave or leaves of absence with or without pay at such time or times and upon such terms and conditions as the Board of Directors in its discretion may determine.  (d) In addition, the Employee shall be entitled to an annual sick leave benefit as established by the Board of Directors for senior management employees of The Killbuck Savings Bank Company. In the event that any sick leave benefit shall not have been used during any year, such leave shall accrue to subsequent years to the extent authorized by the Board of Directors for employees of The Killbuck Savings Bank Company.  9. Termination and Termination Pay.  The Employee’s employment under this Agreement shall be terminated upon any of the following occurrences:  (a) The death of the Employee during the term of this Agreement, in which event the Employee’s estate shall be entitled to receive the compensation due the Employee through the last day of the third calendar month following the month in which Employee’s death shall have occurred.  (b) The Board of Directors may terminate the Employee’s employment at any time, but any termination by the Board of Directors other than termination for Just Cause, shall not prejudice the Employee’s right to compensation or other benefits under the Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for “Just Cause” shall include termination because of the Employee’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement.  (c) Except as provided pursuant to Section 12 herein, in the event Employee’s employment under this Agreement is terminated by the Board of Directors without Just Cause, The Killbuck Savings Bank Company shall be obligated to continue to pay the Employee the salary provided pursuant to Section 2 herein, up to the date of termination of the Term (including any renewal term) of this Agreement and the cost of Employee obtaining all health, life, disability, and other benefits which the Employee would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Employee at the date of termination of employment. Notwithstanding the foregoing, in no event except as provided pursuant to Section 12 herein shall the Employee receive payment of his salary in accordance with Section 2 herein and the cost of applicable benefits for a period of more than twelve months from the date of termination of employment without Just Cause. To receive compensation under this section, employee agrees not to be employed at any financial institution, which maintains offices within Holmes County while receiving such compensation. Such employment will result in employee forfeiting any remaining compensation as described in this section.  (d) If the Employee is removed and/or permanently prohibited from participating in the conduct of The Killbuck Savings Bank Company’s affairs by an order issued under Section 8 (e) (4) or 8 (g) (1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818 (e) (4) and (g) (1)), all obligations of The Killbuck Savings Bank Company under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected.  (e) If The Killbuck Savings Bank Company is in default (as defined in Section 3 (x) (1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.    (f) All obligations under this Agreement shall be terminated, except as to the extent determined that continuation of this Agreement is necessary for the continued operation of The Killbuck Savings Bank Company (i) by the Superintendent of the Division of Financial Institutions, or his designee, at the time that the Federal Deposit Insurance Corporation (“FDIC”) or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of The Killbuck Savings Bank Company under the authority contained in Section 13 (c) of FDIA; or (ii) by the Superintendent of the Division of Financial Institutions, or his designee, at the time that the Superintendent of the Division of Financial Institutions, or his designee, approves a supervisory merger to resolve problems related to operation of The Killbuck Savings Bank Company or when The Killbuck Savings Bank Company is determined by the Superintendent of the Division of Financial Institutions to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.  (g) The voluntary termination by the Employee during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 12 (b) in which case the Employee shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination.  (h) Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement or otherwise, shall be subject to and conditioned upon compliance with 12 USC Sec. 1828 (k) and any regulations promulgated thereunder.        10. Suspension of Employment. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of The Killbuck Savings Bank Company’s affairs by a notice served under Section 8 (e) (3) or (g) (1) of the FDIA (12 U.S.C. 1818 (e) (3) and (g) (1)), The Killbuck Savings Bank Company’s obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, The Killbuck Savings Bank Company may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate any of its obligations which were suspended.        11. Disability. If the Employee shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Employee shall nevertheless continue to receive the compensation and benefits provided under the terms of this Agreement in accordance with The Killbuck Savings Bank Company’s disability policy, as in effect on the date he becomes disabled. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Employee during such period under the provisions of disability insurance coverage in effect for The Killbuck Savings Bank Company’s employees. Thereafter, Employee shall be eligible to receive benefits provided by The Killbuck Savings Bank Company under the provisions of disability insurance coverage in effect for The Killbuck Savings Bank Company’s employees. Upon returning to active full-time employment, the Employee’s full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Employee returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 2 of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties at the discretion of the Board of Directors.    12. Change in Control.  (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee’s employment during the Term of this Agreement following any change in control of The Killbuck Savings Bank Company, absent Just Cause, Employee shall be paid an amount equal to the product of 2.00 times the Employee’s “base amount” as defined in Section 280G (b) (3) of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations promulgated thereunder. Said sum shall be paid, at the option of employee, either in one (1) lump sum within thirty (30) days of such termination discounted to the present value of such payment using as the discount rate the “prime rate” as published in the Wall Street Journal Eastern Edition as of the date of such payment minus 100 basis points, or in periodic payments over the next 24 months or the remaining term of this Agreement whichever is less, as if Employee’s employment had not been terminated, and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitle to receive under Section 9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by The Killbuck Savings Bank Company shall be deemed an “excess parachute payment” in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term “control” shall refer to the ownership, holding or power to vote more than 25% of the Holding Company’s voting stock, the control of the election of a majority of The Killbuck Savings Bank Company’s directors, or the exercise of a controlling influence over the management or policies of The Killbuck Savings Bank Company by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934. The term “person” means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein.  (b) Notwithstanding any other provision of this Agreement to the contrary, Employee may voluntarily terminate his employment during the Term of this Agreement following a change in control of The Killbuck Savings Bank Company, and Employee shall thereupon be entitled to receive the payment described in Section 12(a) of this Agreement, upon the occurrence, or within one hundred eighty (180) days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing: (i) if Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee’s primary office as of the signing of this Agreement; (ii) if in the organizational structure of The Killbuck Savings Bank Company, Employee would be required to report to a person or persons other than the Board of The Killbuck Savings Bank Company; (iii) if The Killbuck Savings Bank Company should fail to maintain Employee’s base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit, stock option and retirement plans, except to the extent that such reduction in benefit programs is part of an overall adjustment in benefits for all employees of The Killbuck Savings Bank Company and does not disproportionately adversely impact the Employee; (iv) if Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; (v) if Employee would not be elected or re-elected to the Board of Directors of The Killbuck Savings Bank Company or (vi) if Employee’s responsibilities or authority have in any way been diminished or reduced.  13. Successors and Assigns.  (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of The Killbuck Savings Bank Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of The Killbuck Savings Bank Company.    (b) Since The Killbuck Savings Bank Company is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of The Killbuck Savings Bank Company.  14. Amendments. No amendments or additions to this Agreement shall be binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided.  15. Applicable Law. This Agreement shall be governed by all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Ohio, except to the extent that Federal law shall be deemed to apply.  16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association (“AAA”) nearest to the home office of The Killbuck Savings Bank Company, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The Killbuck Savings Bank Company shall reimburse Employee for all reasonable costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, following the delivery of the decision of the arbitrator finding in favor of the Employee. Further, the settlement of the dispute to be approved by the Board of Directors of The Killbuck Savings Bank Company may include a provision for the reimbursement by The Killbuck Savings Bank Company to the Employee for all reasonable costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, or the Board of Directors of The Killbuck Savings Bank Company may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board of Directors following settlement of the dispute.  18. Entire Agreement. This Agreement together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire Agreement between the parties hereto subject to the Laws of the State of Ohio.    IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written.               Signed in presence of      THE KILLBUCK SAVINGS BANK COMPANY        /s/ Kenneth E. Taylor      By: 1.    /s/ Richard L. Fowler  Witness as to 1         Richard L. Fowler, Chairman  Chairman         Board of Directors        /s/ Theodore A. Bratton           Witness as to 1                     EMPLOYEE        /s/ Kenneth E. Taylor      By: 2.    /s/ Craig A. Lawhead  Witness as to 2         Craig A. Lawhead, Exec. Vice President              /s/ Theodore S. Bratton           Witness as to 2               EX-10.3 4 dex103.htm EMPLOYMENT AGREEMENT BETWEEN KILLBUCK SAVINGS BANK COMPANY AND DIANE S. KNOWLES   Employment Agreement between Killbuck Savings Bank Company and Diane S. Knowles   EXHIBIT 10.3  EMPLOYMENT AGREEMENT  THIS AGREEMENT entered into this 25th day of April, 2005, (“Effective Date”), by and between THE KILLBUCK SAVINGS BANK COMPANY and DIANE S. KNOWLES (the “Employee”).  WHEREAS, the Employee has heretofore been employed by The Killbuck Savings Bank Company as Chief Financial Officer and is experienced in all phases of the business of The Killbuck Savings Bank Company; and  WHEREAS, the parties desire by this agreement to set forth the continuing employment relationship of The Killbuck Savings Bank Company and the Employee.  NOW, THEREFORE, it is AGREED as follows:  1. Employment. The Employee is employed in the capacity as the Chief Financial Officer of The Killbuck Savings Bank Company. The Employee shall render such administrative and management services to The Killbuck Savings Bank Company as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall promote the business of The Killbuck Savings Bank Company. The Employee’s other duties shall be such as the Board of Directors for The Killbuck Savings Bank Company may from time to time reasonably direct, including normal duties as an officer of The Killbuck Savings Bank Company.  2. Base Compensation. The Killbuck Savings Bank Company agrees to pay the Employee during the Term of this Agreement (as hereinafter defined at Section 5) a salary at the rate of at least $105,000.00 per annum, payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and Employee shall be entitled to receive annually an adjustment at such percentage or in such an amount as the Board of Directors in its sole discretion may decide at such time.  3. Discretionary Bonus. The Employee shall be entitled to participate in an equitable manner with all other senior management employees of The Killbuck Savings Bank Company in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management employees from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as declared by the Board of Directors.  4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in any plan of The Killbuck Savings Bank Company relating to pension, profit-sharing, or other retirement benefits and medical coverage or reimbursement plans that The Killbuck Savings Bank Company may adopt for the benefit of its employees. Additionally, Employee’s dependent family shall be eligible to participate in medical and dental insurance plans sponsored by The Killbuck Savings Bank Company with the cost of such premiums paid by The Killbuck Savings Bank Company.    (b) Employee Benefits; Expenses. The Employee shall be eligible to participate in any fringe benefits which may be or may become applicable to The Killbuck Savings Bank Company’s senior management employees, including by example, participation in any stock option or incentive plans adopted by the Board of Directors of The Killbuck Savings Bank Company and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Killbuck Savings Bank Company shall reimburse Employee for all reasonable out-of-pocket expenses which Employee shall incur in connection with her service for The Killbuck Savings Bank Company.  5. Term. The term of employment of Employee under this Agreement shall be for the period commencing on the Effective Date and ending one year thereafter. Additionally, on, or before, each annual anniversary date from the Effective Date, the term of employment under this Agreement shall be extended for up to an additional one year period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Terms of such Agreement shall be extended. If at any time during the original term of this Agreement, or any extension thereof, discussions or negotiations take place which, if concluded by agreement, would result in a change in control as defined in paragraph 12, the determination and resolution referred to above shall not be required, and this Agreement shall be deemed extended for a period of one (1) year beyond the then effective expiration date. Such extension shall occur whether or not such discussions or negotiations actually resulted in an agreement.  6. Loyalty; Noncompetition.  (a) The Employee shall devote her full time and attention to the performance of her employment under this Agreement. During the term of Employee’s employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interest of The Killbuck Savings Bank Company.  (b) Nothing contained in this Section 6 shall be deemed to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of The Killbuck Savings Bank Company exceeding 4.9% of said Company.  7. Standards. The Employee shall perform her duties under this Agreement in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors.  8. Vacation and Sick Leave. At such reasonable times as the Board of Directors shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent herself voluntarily from the performance of her employment under this Agreement, with all such voluntary absences to count as vacation time; provided that:  (a) The Employee shall be entitled to annual vacation leave in accordance with the policies as are periodically established by the Board of Directors for senior management employees of The Killbuck Savings Bank Company.  (b) Employee shall not be entitled to accumulate unused vacation from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of The Killbuck Savings Bank Company.    (c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay to absent herself voluntarily from the performance of her employment with The Killbuck Savings Bank Company for such additional periods of time and for such valid and legitimate reasons as the Board of Directors in its discretion may determine. Further, the Board of Directors shall be entitled to grant to the Employee a leave or leaves of absence with or without pay at such time or times and upon such terms and conditions as the Board of Directors in its discretion may determine.  (d) In addition, the Employee shall be entitled to an annual sick leave benefit as established by the Board of Directors for senior management employees of The Killbuck Savings Bank Company. In the event that any sick leave benefit shall not have been used during any year, such leave shall accrue to subsequent years to the extent authorized by the Board of Directors for employees of The Killbuck Savings Bank Company.  9. Termination and Termination Pay.  The Employee’s employment under this Agreement shall be terminated upon any of the following occurrences:  (a) The death of the Employee during the term of this Agreement, in which event the Employee’s estate shall be entitled to receive the compensation due the Employee through the last day of the third calendar month following the month in which Employee’s death shall have occurred.  (b) The Board of Directors may terminate the Employee’s employment at any time, but any termination by the Board of Directors other than termination for Just Cause, shall not prejudice the Employee’s right to compensation or other benefits under the Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for “Just Cause” shall include termination because of the Employee’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement.  (c) Except as provided pursuant to Section 12 herein, in the event Employee’s employment under this Agreement is terminated by the Board of Directors without Just Cause, The Killbuck Savings Bank Company shall be obligated to continue to pay the Employee the salary provided pursuant to Section 2 herein, up to the date of termination of the Term (including any renewal term) of this Agreement and the cost of Employee obtaining all health, life, disability, and other benefits which the Employee would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Employee at the date of termination of employment. Notwithstanding the foregoing, in no event except as provided pursuant to Section 12 herein shall the Employee receive payment of her salary in accordance with Section 2 herein and the cost of applicable benefits for a period of more than twelve months from the date of termination of employment without Just Cause. To receive compensation under this section, employee agrees not to be employed at any financial institution, which maintains offices within Holmes County while receiving such compensation. Such employment will result in employee forfeiting any remaining compensation as described in this section.  (d) If the Employee is removed and/or permanently prohibited from participating in the conduct of The Killbuck Savings Bank Company’s affairs by an order issued under Section 8 (e) (4) or 8 (g) (1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818 (e) (4) and (g) (1)), all obligations of The Killbuck Savings Bank Company under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected.  (e) If The Killbuck Savings Bank Company is in default (as defined in Section 3 (x) (1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.    (f) All obligations under this Agreement shall be terminated, except as to the extent determined that continuation of this Agreement is necessary for the continued operation of The Killbuck Savings Bank Company (i) by the Superintendent of the Division of Financial Institutions, or his designee, at the time that the Federal Deposit Insurance Corporation (“FDIC”) or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of The Killbuck Savings Bank Company under the authority contained in Section 13 (c) of FDIA; or (ii) by the Superintendent of the Division of Financial Institutions, or his designee, at the time that the Superintendent of the Division of Financial Institutions, or his designee, approves a supervisory merger to resolve problems related to operation of The Killbuck Savings Bank Company or when The Killbuck Savings Bank Company is determined by the Superintendent of the Division of Financial Institutions to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.  (g) The voluntary termination by the Employee during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 12 (b) in which case the Employee shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination.  (h) Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement or otherwise, shall be subject to and conditioned upon compliance with 12 USC Sec. 1828 (k) and any regulations promulgated thereunder.  10. Suspension of Employment. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of The Killbuck Savings Bank Company’s affairs by a notice served under Section 8 (e) (3) or (g) (1) of the FDIA (12 U.S.C. 1818 (e) (3) and (g) (1)), The Killbuck Savings Bank Company’s obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, The Killbuck Savings Bank Company may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate any of its obligations which were suspended.        11. Disability. If the Employee shall become disabled or incapacitated to the extent that she is unable to perform her duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Employee shall nevertheless continue to receive the compensation and benefits provided under the terms of this Agreement in accordance with The Killbuck Savings Bank Company’s disability policy, as in effect on the date she becomes disabled. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Employee during such period under the provisions of disability insurance coverage in effect for The Killbuck Savings Bank Company’s employees. Thereafter, Employee shall be eligible to receive benefits provided by The Killbuck Savings Bank Company under the provisions of disability insurance coverage in effect for The Killbuck Savings Bank Company’s employees. Upon returning to active full-time employment, the Employee’s full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Employee returns to active employment on other than a full-time basis, then her compensation (as set forth in Section 2 of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties at the discretion of the Board of Directors.    12. Change in Control.  (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee’s employment during the Term of this Agreement following any change in control of The Killbuck Savings Bank Company, absent Just Cause, Employee shall be paid an amount equal to the product of 2.00 times the Employee’s “base amount” as defined in Section 280G (b) (3) of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations promulgated thereunder. Said sum shall be paid, at the option of employee, either in one (1) lump sum within thirty (30) days of such termination discounted to the present value of such payment using as the discount rate the “prime rate” as published in the Wall Street Journal Eastern Edition as of the date of such payment minus 100 basis points, or in periodic payments over the next 24 months or the remaining term of this Agreement whichever is less, as if Employee’s employment had not been terminated, and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitle to receive under Section 9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by The Killbuck Savings Bank Company shall be deemed an “excess parachute payment” in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term “control” shall refer to the ownership, holding or power to vote more than 25% of the Holding Company’s voting stock, the control of the election of a majority of The Killbuck Savings Bank Company’s directors, or the exercise of a controlling influence over the management or policies of The Killbuck Savings Bank Company by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934. The term “person” means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein.  (b) Notwithstanding any other provision of this Agreement to the contrary, Employee may voluntarily terminate her employment during the Term of this Agreement following a change in control of The Killbuck Savings Bank Company, and Employee shall thereupon be entitled to receive the payment described in Section 12(a) of this Agreement, upon the occurrence, or within one hundred eighty (180) days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing: (i) if Employee would be required to move her personal residence or perform her principal executive functions more than thirty-five (35) miles from the Employee’s primary office as of the signing of this Agreement; (ii) if in the organizational structure of The Killbuck Savings Bank Company, Employee would be required to report to a person or persons other than the Board of The Killbuck Savings Bank Company; (iii) if The Killbuck Savings Bank Company should fail to maintain Employee’s base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit, stock option and retirement plans, except to the extent that such reduction in benefit programs is part of an overall adjustment in benefits for all employees of The Killbuck Savings Bank Company and does not disproportionately adversely impact the Employee; (iv) if Employee would be assigned duties and responsibilities other than those normally associated with her position as referenced at Section 1, herein; (v) if Employee would not be elected or re-elected to the Board of Directors of The Killbuck Savings Bank Company or (vi) if Employee’s responsibilities or authority have in any way been diminished or reduced.  13. Successors and Assigns.  (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of The Killbuck Savings Bank Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of The Killbuck Savings Bank Company.    (b) Since The Killbuck Savings Bank Company is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating her rights or duties hereunder without first obtaining the written consent of The Killbuck Savings Bank Company.  14. Amendments. No amendments or additions to this Agreement shall be binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided.  15. Applicable Law. This Agreement shall be governed by all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Ohio, except to the extent that Federal law shall be deemed to apply.  16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association (“AAA”) nearest to the home office of The Killbuck Savings Bank Company, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The Killbuck Savings Bank Company shall reimburse Employee for all reasonable costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, following the delivery of the decision of the arbitrator finding in favor of the Employee. Further, the settlement of the dispute to be approved by the Board of Directors of The Killbuck Savings Bank Company may include a provision for the reimbursement by The Killbuck Savings Bank Company to the Employee for all reasonable costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, or the Board of Directors of The Killbuck Savings Bank Company may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board of Directors following settlement of the dispute.  18. Entire Agreement. This Agreement together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire Agreement between the parties hereto subject to the Laws of the State of Ohio.    IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written.               Signed in presence of      THE KILLBUCK SAVINGS BANK COMPANY              /s/ Kenneth E. Taylor      By: 1.    /s/ Richard L. Fowler  Witness as to 1         Richard L. Fowler, Chairman           Board of Directors   /s/ Dean J. Mullet           Witness as to 1                     EMPLOYEE        /s/ Kenneth E. Taylor      By: 2.    /s/ Diane S. Knowles  Witness as to 2         Diane S. Knowles, Chief Financial Officer              /s/ Dean J. Mullet           Witness as to 2               EX-12 5 dex12.htm STATEMENT REGARDING COMPUTATION OF RATIOS.   Statement regarding computation of ratios.   EXHIBIT 12  Statement Regarding Computation of Ratios  The following formulas were used to calculate the ratios in the Selected Financial Data for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, included in this report as Exhibit 13.  (Calculation)  Net Income/Weighted average shares of common stock outstanding for the period = Earnings Per Share.                            December 31,       2005    2004    2003    2002    2001   Net income    $ 4,210,868    $ 3,419,408    $ 3,208,820    $ 3,217,544    $ 2,944,565   Weighted Average Shares Outstanding      654,289      662,415      676,380      687,216      696,674   Per Share Amount    $ 6.44    $ 5.16    $ 4.75    $ 4.68    $ 4.23      Cash dividends/Weighted Average Shares Outstanding = Cash dividends declared Per share                    December 31,       2005    2004    2003    2002    2001   Cash dividends    $ 1,437,738    $ 1,291,144    $ 1,240,872    $ 1,200,309    $ 1,113,627   Weighted Average shares outstanding      654,289      662,415      676,380      687,216      696,674   Per Share Amount    $ 2.20    $ 1.95    $ 1.85    $ 1.75    $ 1.60      Shareholders’ Equity/Shares Outstanding at period end = Book Value per share                    December 31,       2005    2004    2003    2002    2001   Shareholders’ Equity    $ 37,049,303    $ 35,358,934    $ 34,061,554    $ 34,203,659    $ 33,037,452   Shares outstanding      647,760      657,486      664,788      683,660      693,287   Per Share Amount    $ 57.20    $ 53.78    $ 51.24    $ 50.03    $ 47.65                            Net Income/Average Assets = Return on Average Assets                                 (In Thousands) December 31,         2005     2004     2003     2002     2001     Net Income    $ 4,211     $ 3,419     $ 3,209     $ 3,218     $ 2,945     Average Assets    $ 291,818     $ 288,574     $ 284,725     $ 280,598     $ 268,265     Return on Average Assets      1.44 %     1.18 %     1.13 %     1.15 %     1.10 %        Net Income/Average Shareholders’ equity = Return on Average Equity                             (In Thousands) December 31,         2005     2004     2003     2002     2001     Net Income    $ 4,211     $ 3,419     $ 3,209     $ 3,218     $ 2,945     Average Shareholders’ Equity    $ 34,410     $ 33,333     $ 32,838     $ 31,868     $ 31,534     Return on Average Equity      12.24 %     10.26 %     9.77 %     10.10 %     9.34 %        Cash dividends per share/ Net income per share = Dividends Payout Ratio                            December 31,         2005     2004     2003     2002     2001     Cash dividends per share    $ 2.20     $ 1.95     $ 1.85     $ 1.75     $ 1.60     Net income per share    $ 6.44     $ 5.16     $ 4.75     $ 4.68     $ 4.23     Dividend Payout Ratio      34.16 %     37.79 %     38.95 %     37.31 %     37.83 %                             Average Equity/Average Assets = Average Equity To Average Assets                             (In thousands) December 31,         2005     2004     2003     2002     2001     Average Shareholders’ Equity    $ 34,410     $ 33,333     $ 32,838     $ 31,868     $ 31,534     Average Assets    $ 291,818     $ 288,574     $ 284,725     $ 280,598     $ 268,265     Average Equity to Average Assets      11.79 %     11.55 %     11.53 %     11.36 %     11.75 %        Loans/Total deposits = Loan to Deposit Ratio                             (In thousands) December 31,         2005     2004     2003     2002     2001     Total loans    $ 208,901     $ 217,173     $ 201,697     $ 175,157     $ 152,158     Total deposits    $ 250,349     $ 247,349     $ 241,724     $ 239,039     $ 237,971     Loan to Deposit Ratio      83.44 %     87.8 %     83.44 %     73.28 %     63.94 %        Allowance for Loan Loss/ Total Loan = Allowance To Total Loan Ratio                             (In thousands) December 31,         2005     2004     2003     2002     2001     Allowance    $ 2,313     $ 2,646     $ 2,702     $ 2,326     $ 2,261     Total loans    $ 208,901     $ 217,173     $ 201,697     $ 175,157     $ 152,158     Allowance to total Loan ratio      1.11 %     1.22 %     1.34 %     1.33 %     1.49 %      EX-13 6 dex13.htm PORTIONS OF THE 2005 ANNUAL REPORT TO SHAREHOLDERS   Portions of the 2005 Annual Report to Shareholders   EXHIBIT 13  Killbuck Bancshares, Inc.  Corporate Profile  Killbuck Bancshares, Inc. (the “Company”) was incorporated under the laws of the State of Ohio on November 29, 1991 at the direction of management of the Bank, for the purpose of becoming a bank holding company by acquiring all of the outstanding shares of The Killbuck Savings Bank Company. In November 1992, the Company became the sole shareholder of the Bank. The Bank carries on business under the name “The Killbuck Savings Bank Company.” The principal office of the Company is located at 165 N. Main Street, Killbuck, Ohio.  The Killbuck Savings Bank Company was established under the banking laws of the State of Ohio in September of 1900. The Bank is headquartered in Killbuck, Ohio, which is located in the northeast portion of Ohio, in Holmes County. The Bank is insured by the Federal Deposit Insurance Corporation, and is regulated by the Ohio Division of Financial Institutions and the Board of Governors of the Federal Reserve System.  The Bank provides customary retail and commercial banking services to its customers, including checking and savings accounts, Health Savings Accounts (HSA), time deposits, interest-bearing accounts, internet banking, bill payment, safe deposit facilities, real estate mortgage loans and consumer loans. The Bank also makes secured and unsecured commercial loans.  Stock Market Information  There is no established public trading market for our common stock and our shares are not listed on any exchange. Sale price information is based on information reported to us by individual buyers and sellers of our stock. The following table summarizes the high and low prices and dividend information for 2005 and 2004. Cash dividends are paid on a semi-annual basis.                    Quarter Ended    High    Low    CashDividendsPaid  2005   March 31    $ 98.75    $ 97.64      N/A     June 30      100.06      98.85    $ 1.05     September 30      102.44      100.80      N/A     December 31      103.45      102.44    $ 1.15        2004   March 31    $ 95.00    $ 95.00      N/A     June 30      95.00      95.00    $ .95     September 30      96.69      95.00      N/A     December 31      97.38      96.38    $ 1.00  At December 31, 2005, the Company had approximately 1,023 shareholders of record.    Selected Financial Data  The following table sets forth general information and ratios of the Company at the dates indicated (in thousands except per share data and shares).                                 Year Ended December 31,         2005     2004     2003     2002     2001     For The Year:                             Total interest income    $ 16,618     $ 14,033     $ 14,283     $ 16,057     $ 19,025     Total interest expense      4,169       3,264       4,017       5,926       9,237                                                Net interest income      12,449       10,769       10,266       10,131       9,788     Provision for loan losses      377       225       390       210       263                                                Net interest income after provision for loan losses      12,072       10,544       9,876       9,921       9,525     Total other income      1,265       1,015       1,120       873       730     Total other expense      7,613       7,158       7,045       6,642       6,407                                                Income before income taxes      5,724       4,401       3,951       4,152       3,848     Income tax expense      1,513       982       742       934       903                                                Net income    $ 4,211     $ 3,419     $ 3,209     $ 3,218     $ 2,945                                                Per share data                             Net earnings    $ 6.44     $ 5.16     $ 4.75     $ 4.68     $ 4.23     Dividends    $ 2.20     $ 1.95     $ 1.85     $ 1.75     $ 1.60     Book value (at period end)    $ 57.20     $ 53.78     $ 51.24     $ 50.03     $ 47.65            Average no. of shares outstanding      653,996       662,130       676,133       686,739       696,017            Year-end balances:                             Total loans    $ 208,901     $ 217,173     $ 201,697     $ 175,157     $ 152,158     Securities      45,078       45,769       58,211       80,626       91,223     Total assets      298,050       293,867       284,139       283,174       281,258     Deposits      250,349       247,349       241,724       239,039       237,971     Borrowings      9,599       10,575       7,810       9,198       9,522     Shareholders’ equity      37,049       35,359       34,062       34,204       33,037            Significant ratios:                             Return on average assets      1.44 %     1.18 %     1.13 %     1.15 %     1.10 %   Return on average equity      12.24       10.26       9.77       10.10       9.34     Dividends per share to net income per share      34.16       37.72       38.95       37.31       37.83     Average equity to average assets      11.79       11.55       11.53       11.36       11.75     Loans to deposits      83.44       87.80       83.44       73.28       63.94     Allowance for loan loss to total loans      1.11       1.22       1.34       1.33       1.49      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Killbuck Bancshares, Inc. (“Killbuck” or the “Company”) is the parent holding company for the Killbuck Savings Bank Company (the “Bank”). The following discussion and analysis is intended to provide information about the financial condition and results of operation of the Company and should be read in conjunction with the audited Consolidated Financial Statements, footnotes and other discussions appearing elsewhere in this annual report and the Company’s Form 10-K.  Certain information presented in this discussion and analysis and other statements concerning future performance, developments or events, and expectations for growth and market forecasts constitute forward-looking statements which are subject to a number of risks and uncertainties, including interest rate fluctuations, changes in local or national economic conditions, and government and regulatory actions which might cause actual results to differ materially from stated expectations or estimates.  Critical Accounting Policies  The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the consolidated financial statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.  Allowance for Loan Losses  Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio.  Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of “Notes to Consolidated Financial Statements.”  Goodwill and Other Intangible Assets  As discussed in Note 7 of the consolidated financial statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.  Deferred Tax Assets  We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. Our deferred tax assets are described further in Note 14 of the consolidated financial statements.    Overview  The reported results of the Company are dependent on a variety of factors, including the general interest rate environment, competitive conditions in the industry, governmental policies and regulations and conditions in the markets for financial assets. We are not aware of any market or institutional trends, events or uncertainties that are expected to have a material effect on liquidity, capital resources or operations. Net interest income is the largest component of net income, and consists of the difference between income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volume, interest rates and composition of interest-earning assets and interest-bearing liabilities.  The branch facility in Sugarcreek, Ohio opened for business in February 2000. In July 2001, a branch facility in Howard, Ohio (Apple Valley Area) opened for business. These locations have given us a presence in the Sugarcreek and Apple Valley areas and allowed us to develop new business and deposit relationships in these areas. A loan production facility was opened in Millersburg, Ohio in July 2003. This facility has allowed us to concentrate our Millersburg lenders into one location to provide better service, more office space, and new business opportunities with a commercial calling officer. In April of 2004, a branch facility was opened in the German Village grocery store complex in Berlin, Ohio. It provides a greater level of convenience to the Berlin community.    RESULTS OF OPERATIONS  Summary  For 2005, we recorded net income of $4.2 million compared to $3.4 million for 2004 and $3.2 million for 2003.  Other operating income was $1.3 million for 2005 compared to $1.0 million for 2004 and $1.1 million for 2003.  Total other operating expenses were $7.6 million in 2005 compared to $7.2 million in 2004 and $7.0 million in 2003.  Earnings per share for 2005 were $6.44 compared to $5.16 for 2004 and $4.75 for 2003.  NET INTEREST INCOME  Our net interest income increased by $1,680,000 in 2005 from 2004 and increased by $503,000 in 2004 from 2003.  Total interest income increased by $2,585,000 or 18.4% for 2005 from 2004. The increase for 2005 resulted primarily from an increase of $2,567,000 in interest income on loans. The increases in loan interest income resulted primarily from increases in the current yield on the loan portfolios. The current yield on the average loan portfolios increased from 5.46% to 6.60%. The increase in the current yield was a result of the loans repricing replacing historically low interest rates. The average loan portfolio increased $2.0 million or .9% for 2005. The $283,000 decrease in investment interest income resulted primarily from decreases in the average volume in the investment portfolio. The average balances of the investment portfolio decreased by $7.4 million or 13.8% for 2005 from 2004 due to increasing federal funds sold for liquidity purposes.  Total interest income decreased by $250,000 or 1.8% for 2004 from 2003. The decrease of $ 250,000 for 2004 resulted primarily from a decrease of $875,000 in interest income on investment securities. The decrease in investment interest income resulted primarily from decreases in the average volume in the investment portfolio, which led to a decrease of 1 basis point to 4.26%. The increases in loan interest income resulted primarily from increases in the average volume of the loan portfolio. The average loan portfolio increased $25.9 million or 13.8% for 2004. The current yield on the average loan portfolios decreased 42 basis points to 5.46%. The decrease in the current yield was a result of the economic environment, historically low interest rates.  The yield on earning assets was 6.09%, 5.13%, and 5.28% for 2005, 2004, and 2003 respectively. The increase in the yield on earning assets is attributable to the general increase in interest rates.  Interest expense for 2005 increased by $905,000 or 27.7% from 2004 and decreased by $753,000 for 2004 from 2003. The increase was primarily due to an increase in the cost on interest bearing liabilities, which increased 45 basis points from 1.54% in 2004 to 1.99% in 2005 and declined 35 basis points from 1.89% in 2003 to 1.54% in 2004.  The average volume of time deposits increased $1.1 million and interest-bearing demand deposits, money market deposits, and savings deposits decreased $1.5 million, $2.1 million, and $150,000 respectively in 2005. The volume increase in time deposits and decreases in other deposit categories are primarily due to the rising interest rate environment. The funds are starting to shift into time deposits. The average volume of time deposits decreased $5.8 million while interest bearing demand deposits, money market deposits, and savings deposits increased $.7 million, $39,000, and $1.6 million respectively for 2004.    The cost on average interest-bearing liabilities was 1.99% for 2005 and 1.54% for 2004, and 1.89% for 2003. The increase for 2005 is due mainly to an increase in the cost of time deposits of 63 basis points.  Mainly due to an increase in the current yields on loans, the net yield on earning assets has increased this year maintaining the rising trend of prior years. The net yield on average interest-earning assets is 4.56%, 3.94% and 3.80% for 2005, 2004 and 2003 respectively.  The following table sets forth, for the periods indicated, information regarding the total dollar amounts of interest income from average interest-earning assets and the resulting yields, the total dollar amount of interest expense on average interest-bearing liabilities and the resulting rate paid, net interest income, interest rate spread and the net yield on interest-earning assets (dollars in thousands):    Average Balance Sheet and Net Interest Analysis                                          For the Year Ended December 31         2005     2004     2003         AverageBalance     Interest    Yield/Rate     AverageBalance     Interest    Yield/Rate     AverageBalance     Interest    Yield/Rate     Assets                                             Interest earning assets:                                             Loans (1)(2)(3)    $ 215,486     14,224    6.60 %   $ 213,463     $ 11,657    5.46 %   $ 187,554     $ 11,029    5.88 %   Securities - taxable (4)      9,863     400    4.06 %     13,308       517    3.88 %     30,874       1,263    4.09 %   Securities – nontaxable      34,719     1,525    4.39 %     38,685       1,700    4.39 %     41,504       1,827    4.40 %   Securities – Equity (4)(5)      1,565     76    4.86 %     1,515       67    4.45 %     1,470       69    4.69 %   Federal funds sold      11,182     393    3.51 %     6,404       92    1.44 %     8,860       95    1.07 %                                                             Total interest - earnings assets      272,815     16,618    6.09 %     273,375       14,033    5.13 %     270,262       14,283    5.28 %                                                    Noninterest-earning assets                                             Cash and due from other Institutions      9,801               9,627                8,508              Premises and equipment, net      5,175               5,013                5,088              Accrued interest      893               781                978              Other assets      5,644               2,542                2,401              Less allowance for loan losses      (2,510 )             (2,764 )              (2,512 )                                                                 Total    $ 291,818             $ 288,574              $ 284,725                                                                   Liabilities and Shareholders Equity                                             Interest bearing liabilities:                                             Interest bearing demand      32,117     162    0.50 %   $ 33,610     $ 123    0.37 %   $ 32,944     $ 161    .49 %   Money market accounts      17,196     235    1.37 %     19,316       171    0.89 %     19,277       198    1.03 %   Savings deposits      42,049     315    0.75 %     42,198       267    0.63 %     40,582       415    1.02 %   Time deposits      107,701     3,129    2.91 %     106,629       2,427    2.28 %     112,388       2,980    2.65 %   Short term borrowings      4,140     47    1.14 %     3,871       8    0.21 %     3,913       5    .13 %    Average Balance Sheet and Net Interest Analysis (Continued)                                        For the Year Ended December 31         2005     2004     2003         AverageBalance    Interest    Yield/Rate     AverageBalance    Interest    Yield/Rate     AverageBalance    Interest    Yield/Rate     Federal Home Loan Bank Advances      6,084      281    4.62 %     6,003      268    4.46 %     3,838      258    6.72 %                                                            Total interest bearing liabilities      209,287      4,169    1.99 %     211,627      3,264    1.54 %     212,942      4,017    1.89 %                                                      Noninterest bearing liabilities:                                              Demand deposits      44,856               41,220               36,327             Accrued expenses and other liabilities      3,265               2,394               2,618                        Shareholder’s equity      34,410               33,333               32,838                                                                Total    $ 291,818             $ 288,574             $ 284,725                                                                Net interest income         $ 12,449             $ 10,769             $ 10,266                                                           Interest rate spread (6)              4.10 %             3.59 %             3.39 %                                                      Net yield on interest earning assets (7)              4.56 %             3.94 %             3.80 %                                                       (1) For purposes of these computations, the daily average loan amounts outstanding are net of deferred loan fees.    (2) Included in loan interest income are loan related fees of $292,727, $299,952, and $406,089 in 2005, 2004, and 2003, respectively.    (3) Nonaccrual loans are included in loan totals and do not have a material impact on the information presented.    (4) Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for available for sale securities.    (5) Equity securities are comprised of common stock of the Federal Home Loan Bank, Federal Reserve Bank, and Great Lakes Bankers Bank.    (6) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.    (7) Net yield on interest earning assets represents net interest income as a percentage of average interest earning assets.    Rate/Volume Analysis  The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate) and (ii) changes in rates (changes in rate multiplied by old average volume). Changes which are not solely attributable to rate or volume are allocated to changes in rate due to rate sensitivity of interest-earning assets and interest-bearing liabilities (dollars in thousands).                                     2005 Compared to 2004Increase (Decrease) Due To     2004 Compared to 2003Increase (Decrease) Due To         Volume     Rate     Net     Volume     Rate     Net     Interest income                                  Loans    $ 110     $ 2,457     $ 2,567     $ 1,524     $ (896 )   $ 628     Securities-taxable      (134 )     17       (117 )     (719 )     (27 )     (746 )   Securities-nontaxable      (174 )     (1 )     (175 )     (124 )     (3 )     (127 )   Securities-equities      2       7       9       2       (4 )     (2 )   Federal funds sold      69       232       301       (26 )     23       (3 )                                                      Total interest earning Assets      (127 )     2,712       2,585       657       (907 )     (250 )                                                      Interest expense                                  Interest bearing demand      (5 )     44       39       3       (41 )     (38 )   Money market accounts      (19  )     83       64       —         (27 )     (27 )   Savings deposits      (1 )     49       48       17       (165 )     (148 )   Time deposits      24       678       702       (153 )     (400 )     (553 )   Short-term borrowing      1       38       39       —         3       3     Federal Home Loan Bank Advances      4       9       13       146       (136 )     10                                                        Total interest bearing Liabilities      4       901       905       13       (766 )     (753 )                                                      Net change in interest income    $ (131 )   $ 1,811     $ 1,680     $ 644     $ (141 )   $ 503                                                       Provision for Loan Losses  The provision for loan losses was $376,722 for 2005, $225,000 for 2004, and $390,000 for 2003. We make periodic provisions to the allowance for loan losses to maintain the allowance at an acceptable level commensurate with the credit risks inherent in the loan portfolio. There can be no assurances, however, that additional provisions will not be required in future periods. The allowance for loan losses as a percent of total loans was 1.11%, 1.22%, and 1.34% for 2005, 2004 and 2003 respectively.  The allowance for loan losses is Management’s estimate of the amount of probable credit losses in the portfolio. The Company determines the allowance for loan losses based upon an ongoing evaluation. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of cash flows expected to be received on impaired loans that may be susceptible to significant change. Increases to the allowance for loan losses are made by charges to the provision for loan losses. Loans deemed uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses.  The Company’s allowance for loan losses is the accumulation of various components calculated based upon independent methodologies. All components of the allowance for loan losses represent an estimation performed according to either Financial Accounting Standards No. 5 or No. 114. Management’s estimate of each allowance component is based on certain observable data that Management believes is the most reflective of the underlying loan losses being estimated. Changes in the amount of each component of the allowance for loan losses are directionally consistent with changes in the observable data and corresponding analyses. Some of the components that Management factors in are current economic conditions, loan growth assumptions, credit concentrations, and levels of nonperforming loans.    A key element of the methodology for determining the allowance for loan losses is the Company’s credit-risk-evaluation process, which includes credit-risk grading of individual commercial loans. Loans are assigned credit-risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each individual borrower. Certain commercial loans are reviewed on an annual or rotational basis or as Management becomes aware of information affecting a borrower’s ability to fulfill its obligation.  Noninterest Income  Total non-interest income, which is comprised principally of fees and charges on customers’ deposit accounts increased $249,000 or 24.5% to $1,264,000 in 2005 and decreased $104,000 or 9.3% to $1,015,000 in 2004 from $1,119,000 in 2003. Service charges increased $20,000 or 2.5% in 2005 due mainly to a continued increase in ATM and debit card interchange fees. In 2004, these fees increased $67,000 or 9.1% due in part to an increase in ATM and debit card usage and an increase in Non Sufficient Funds occurrences, $22,000 and $38,000, respectively. The Bank sells fixed rate loans in the secondary market. Due to market conditions, the Bank originated and sold $719,000 more of these loans in 2005 compared to 2004. Gains for these sales were $72,000 in 2005, $63,000 in 2004 and $241,000 in 2003. Other Income increased $220,000 due primarily to the $149,000 in income from the Bank-Owned Life Insurance (BOLI) purchased in December 2004. The Company purchased life insurance policies on certain key employees. The BOLI is recorded at its cash surrender value or the amount that can be realized. Income from the alternative investment service was $41,000 for 2005 and $25,000 for 2004 and $15,000 for 2003.  Noninterest Expense  Total non-interest expense increased $455,000 or 6.4% to $7.6 million in 2005 as compared to $7.2 million in 2004 and increased $113,000 or 1.6% for 2004 from $7.0 million in 2003.  Salary and employee benefits for 2005 totaled $4.3 million, an increase of $302,000 or 7.6% from $4.0 million in 2004 and increased $268,000 or 7.2% from $3.7 million in 2003. These increases are due to normal increases for annual salary raises and employee benefits and additional branch management personnel hired in December 2004 for Knox County. The increase for 2004 was attributable to staff additions and normal recurring employee cost increases for salary and employee benefits.  Occupancy and equipment expense decreased $40,000 in 2005 and decreased $72,000 in 2004. Depreciation expense decreased another $31,000 in 2005. In 2003, the majority of the computer network equipment was fully depreciated, hence the decrease in expense during 2004.  Other operating expenses for 2005 totaled $2.39 million, a $192,000 or 8.7% increase from the $2.20 million reported in 2004 and an $81,000 or 3.6% decrease from the $2.28 million reported in 2003. Professional fees increased approximately $100,000 of which $70,000 is directly related to the Sarbanes-Oxley Act Section 404 Internal Controls certification work. The public relations expenses increased $27,000 or 28.7% from $94,000 in 2004 to $121,000 for 2005. The increase is due mainly to additional items being provided to the local schools and their activities. Charitable Contributions increased $26,000 or 68.4% from 2004 to 2005 due mainly to the acceleration in the payment of existing pledges and some new recipients. The directors’ fees increased $12,000 or 10.5% from $114,000 in 2004 to $126,000 for 2005. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature. The credit card processing expenses decreased $115,000 or 53.5% from $215,000 in 2003 to $100,000 in 2004 due to the sale of the merchant program. The postage, express and freight expenses increased by $9,000 or 6.1% from $147,000 in 2003 to $156,000 in 2004 due to increased branch usage and the German Village Branch, Berlin, Ohio opening in April 2004. The telephone expense increased $24,000 or 18.3% from $131,000 in 2003 to $155,000 in 2004 due to increased bandwidth on the frame relay and the increased taxes and government surcharges and additional usage at the Loan Annex and German Village locations.    Income Tax Expense  Income tax expense increased $532,000 for 2005 to $1,513,000 from $981,000 in 2004; and increased $239,000 for 2004 to $981,000 from $742,000 in 2003. The effective rate on taxes for 2005, 2004 and 2003 was 26.4%, 22.2%and 18.8% respectively. The effective tax rate is affected by the amount of tax-exempt income earned by the Company each year.  Comparison of Financial Condition at December 31, 2005 and 2004  Total assets at December 31, 2005 amounted to $298 million, an increase of $4 million compared to $294 million at December 31, 2004.  Cash and cash equivalents increased $11.7 million or 53.9% from December 31, 2004 to December 31, 2005, with liquid funds held in the form of federal funds sold increasing $8.8 million. The increase in federal funds sold at December 31, 2005 is the excess of funds from the net increase in deposits that was not used in investing activities, financing activities, or operating activities and from the decrease in net loans.  Total investment securities decreased $.7 million or 1.5% from December 31, 2004 to December 31, 2005. The decrease in investments was due to maturities and calls. Information detailing the book value of the investment portfolio by security type and classification is present in Note 3 to the consolidated financial statements.  Total loans were $208.9 million at December 31, 2005 a decrease of $8.3 million or 3.8% from $217.2 million at December 31, 2004. The loan decreases were due in part to an aggressive loan rate environment, the increase in interest rates, and a general slowdown of the business expansion in the communities we serve. Of this $8.3 million decrease approximately $6.8 million was in the residential real estate loan portfolio, approximately $2.2 million was an increase in the agriculture real estate loan portfolio, approximately $.1 million was an increase in the commercial real estate loan portfolio, approximately $1.6 million was a decrease in the construction real estate loan portfolio, approximately $2.4 million was a decrease in the commercial and other loan portfolio, and approximately $.2 million was a decrease in the consumer and credit loan portfolio. Approximately $.2 million in residential 1 to 4 family fixed rate mortgages increased while the residential 1 to 4 family adjustable rate mortgage portfolio decreased. Late in 1997, we began to offer residential mortgage customers a fixed rate product. This program enables us to offer competitive long-term fixed rates. These loans are made with the intent to sell in the secondary loan market. We originated and sold $12.3 million and $11.6 million of loans in 2005 and 2004. Profit on the sale of these loans was $72,000 and $63,000 for 2005 and 2004. Information detailing the composition of the loan portfolio is presented in Note 4 to the consolidated financial statements.  Total deposits increased $3.0 million or 1.2% from December 31, 2004 to December 31, 2005. Non-interest bearing demand deposit accounts and time deposits increased $3.9 million and $5.1 million, respectively. The interest bearing demand deposits, money market deposits, and savings deposits decreased $2.3 million, $2.8 million, and $.9 million, respectively. The increases are attributable to new deposit account growth and internal growth for existing accounts. See also, Average Balance Sheet and Net Interest Analysis for information related to the average amount and average interest paid on deposit accounts during 2005 and 2004. Information related to the maturity of time deposits of $100,000 and over at December 31, 2005 is presented in Note 8 of the accompanying consolidated financial statements.  Advances were $6.0 million and $6.8 million at December 31, 2005 and 2004 respectively. There was $1.7 million in new advances in 2005 for the matched funding loan program. In 2004, there were $6.0 million in new advances for general liquidity purposes. Additional information on the Federal Home Loan Bank Advances is presented in Note 10 of the accompanying consolidated financial statements.  Shareholders’ equity increased $1.7 million during 2005 to $37.1 million at December 31, 2005 from $35.4 million at December 31, 2004. This increase was the result of $4.2 million in net earnings during the year, a net unrealized loss on securities available for sale of $.1 million, and Cash Dividends paid totaling $1.4 million. The Company also purchased treasury stock for $1.0 million. Treasury stock purchases are monitored against the Company’s Strategic Plan and the goals set forth in the plan. The Treasury stock purchases have not exceeded the Strategic Plan’s guidelines for 2005.    Market Risk and Asset/Liability Management  Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. Because of the nature of our operations, we are not subject to currency exchange or commodity price risk and, since we have no trading portfolio, it is not subject to trading risk. Currently, we have equity securities that represent only 3.4% of its investment portfolio and, therefore, equity price risk is not significant.  We actively manage interest rate sensitivity and asset/liability products through an asset/liability management committee. The principle objectives of asset-liability management are to maximize current net interest income while minimizing the risk to future earnings of negative fluctuations in net interest margin and to insure adequate liquidity exists to meet operational needs.  In an effort to reduce interest rate risk and protect itself from the negative effects or rapid or prolonged changes in interest rates, we have instituted certain asset and liability management measures, including underwriting long-term fixed rate loans that are saleable in the secondary market, offering longer term deposit products and diversifying the loan portfolio into shorter term consumer and commercial business loans. In addition, since the mid-1980’s, we have originated adjustable-rate loans and as of December 31, 2005, they comprised approximately 84.6% of the total loan portfolio.  Liquidity  Liquidity represents our ability to meet normal cash flow requirements of our customers for the funding of loans and repayment of deposits. Both short term and long term liquidity needs are generally derived from the repayments and maturities of loans and investment securities, and the receipt of deposits. Management monitors liquidity daily, and on a monthly basis incorporates liquidity management into its asset/liability program. The assets defined as liquid are cash, cash equivalents, and the available for sale security portfolio. The liquidity ratio as of December 31, 2005 and 2004 are 16% and 11%, respectively.  Operating activities, as presented in the statement of cash flows in the accompanying consolidated financial statements, provided $5.2 million and $1.5 million in cash during 2005 and 2004 respectively, generated principally from net income.  Investing activities consist primarily of loan originations and repayments, investment purchases and maturities, and investment in technology. These activities provided $6.9 million in funds during 2005 principally by the net payments of loans and the net proceeds of investments of $7.5 million and $.7 million, respectively; and used funds for the net purchase of technology and fixed asset totaling $1.3 million. These activities used $3.8 million in funds during 2004, principally for the net funding of loans, and the net purchase of technology and fixed assets totaling $15.7 million, and $.3 million respectively; and provided the net proceeds of investments of $12.2 million.  Financing activities consisted of the solicitation and repayment of customer deposits, borrowings and repayments, purchase of treasury stock, and the payment of dividends. For 2005, financing activities used $.4 million in funds, comprised mainly of net Federal Home Loan Bank advance repayments of $.9 million, net decrease in short-term borrowings of $.1 million, purchase of treasury stock of $1.0 million and payment of dividends of $1.4 million; and provided net deposit increases of $3.0 million. For 2004, financing activities provided $6.4 million, comprised mainly of net deposit increases of $5.6 million, proceeds from Federal Home Loan Bank advances of $6 million, repayment of Federal Home Loan Bank advances of $2.6 million, net decrease in short-term borrowings of $.6 million, purchase of treasury stock of $.7 million and payment of dividends of $1.3 million.  In addition to using the loan, investment and deposit portfolios as sources of liquidity, we have access to funds from the Federal Home Loan Bank of Cincinnati. We also have a ready source of funds through the available-for-sale component of the investment securities portfolio.    Capital Resources  Capital adequacy is our ability to support growth while protecting the interests of shareholders and depositors. Bank regulatory agencies have developed certain capital ratio requirements, which are used to assist them in monitoring the safety and soundness of financial institutions. We continually monitor these capital requirements and believe the Company to be in compliance with these regulations at December 31, 2005.  Our regulatory capital position at December 31, 2005, as compared to the minimum regulatory capital requirements imposed on us by banking regulators at that date is presented in Note 17 of the accompanying consolidated financial statements. We are not aware of any actions contemplated by banking regulators, which would result in us being in non-compliance with capital requirements.  Impact of Inflation Changing Prices  The consolidated financial statements and the accompanying notes presented elsewhere in this document, have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities are monetary in nature. The impact of inflation is reflected in the increased cost of operations. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.    Killbuck Bancshares, Inc.  Killbuck, Ohio  Audit Report  December 31, 2005    Killbuck Bancshares, Inc.  AUDITED CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005               PageNumber   Report of Independent Registered Public Accounting Firm    2      Financial Statements          Consolidated Balance Sheet    3      Consolidated Statement of Income    4      Consolidated Statement of Changes in Shareholders’ Equity    5      Consolidated Statement of Cash Flows    6      Notes to Consolidated Financial Statements    7-25    Report of Independent Registered Public Accounting Firm  The Board of Directors and Shareholders  Killbuck Bancshares, Inc.  We have audited the accompanying consolidated balance sheet of Killbuck Bancshares, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Killbuck Bancshares, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.  /s/ S.R. Snodgrass, A.C.  Steubenville, Ohio  February 9, 2006    -2-    Killbuck Bancshares, Inc.  CONSOLIDATED BALANCE SHEET                     December 31,         2005     2004     ASSETS              Cash and cash equivalents:              Cash and amounts due from depository institutions    $ 15,031,294     $ 12,163,199     Federal funds sold      18,300,000       9,500,000                        Total cash and cash equivalents      33,331,294       21,663,199                        Investment securities:              Securities available for sale      14,307,200       9,754,110     Securities held to maturity (fair value of $31,696,907 and $37,947,368)      30,770,829       36,015,317                        Total investment securities      45,078,029       45,769,427                        Loans (net of allowance for loan losses of $2,313,312 and $2,645,981)      206,241,946       214,161,315         Loans held for sale      94,600       167,500     Premises and equipment, net      5,834,516       4,949,795     Accrued interest receivable      1,145,875       927,860     Goodwill, net      1,329,249       1,329,249     Other assets      4,994,451       4,898,694                        Total assets    $ 298,049,960     $ 293,867,039                        LIABILITIES              Deposits:              Noninterest bearing demand    $ 51,130,983     $ 47,185,066     Interest bearing demand      32,244,405       34,569,644     Money market      14,716,407       17,504,480     Savings      42,347,138       43,282,000     Time      109,910,217       104,807,571                        Total deposits      250,349,150       247,348,761     Federal Home Loan Bank advances      5,989,051       6,845,342     Short-term borrowings      3,610,000       3,730,000     Accrued interest and other liabilities      1,052,456       584,002                        Total liabilities      261,000,657       258,508,105                        SHAREHOLDERS’ EQUITY              Common stock – No par value: 1,000,000 shares authorized, 718,431 issued      8,846,670       8,846,670     Retained earnings      34,332,104       31,558,974     Accumulated other comprehensive income      (64,736 )     35,201     Treasury stock, at cost (70,671 and 60,945 shares)      (6,064,735 )     (5,081,911 )                      Total shareholders’ equity      37,049,303       35,358,934                        Total liabilities and shareholders’ equity    $ 298,049,960     $ 293,867,039                       See accompanying notes to the consolidated financial statements.    -3-    Killbuck Bancshares, Inc.  CONSOLIDATED STATEMENT OF INCOME                      Year Ended December 31,       2005    2004    2003   INTEREST INCOME                  Interest and fees on loans    $ 14,224,557    $ 11,656,645    $ 11,029,106   Federal funds sold      392,963      92,160      95,625   Investment securities:                  Taxable      475,958      583,917      1,331,800   Exempt from federal income tax      1,524,894      1,700,170      1,826,764                          Total interest income      16,618,372      14,032,892      14,283,295                          INTEREST EXPENSE                  Deposits      3,841,007      2,988,827      3,754,438   Federal Home Loan Bank advances      280,628      267,509      257,525   Short term borrowings      47,447      7,844      5,081                          Total interest expense      4,169,082      3,264,180      4,017,044                          NET INTEREST INCOME      12,449,290      10,768,712      10,266,251        Provision for loan losses      376,722      225,000      390,000                          NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES      12,072,568      10,543,712      9,876,251                          NONINTEREST INCOME                  Service charges on deposit accounts      824,306      803,823      736,763   Gain on sale of loans, net      72,492      62,777      240,885   Other income      367,670      148,615      141,787                          Total other income      1,264,468      1,015,215      1,119,435                          NONINTEREST EXPENSE                  Salaries and employee benefits      4,288,850      3,987,149      3,719,307   Occupancy and equipment      934,534      974,517      1,047,156   Other expense      2,389,316      2,196,676      2,278,040                          Total other expense      7,612,700      7,158,342      7,044,503                          INCOME BEFORE INCOME TAXES      5,724,336      4,400,585      3,951,183   Income taxes      1,513,468      981,177      742,363                          NET INCOME    $ 4,210,868    $ 3,419,408    $ 3,208,820                          EARNINGS PER SHARE    $ 6.44    $ 5.16    $ 4.75                          WEIGHTED AVERAGE SHARES OUTSTANDING      654,289      662,415      676,380                         See accompanying notes to the consolidated financial statements.    -4-    Killbuck Bancshares, Inc.  CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY                                    CommonStock    RetainedEarnings     AccumulatedOtherComprehensiveIncome (Loss )     TreasuryStock     TotalShareholders’Equity     ComprehensiveIncome     BALANCE, DECEMBER 31, 2002    $ 8,846,670    $ 27,462,762     $ 534,990     $ (2,640,763 )   $ 34,203,659          Net income           3,208,820                 3,208,820     $ 3,208,820     Other comprehensive income:                                  Unrealized loss on available for sale securities, net of tax benefit of $189,843                (368,519 )          (368,519 )     (368,519 )                                       Comprehensive income                             $ 2,840,301                                         Cash dividends paid ($1.85 per share)           (1,240,872 )               (1,240,872 )        Purchase of Treasury Stock, at cost (18,872 shares)                     (1,741,534 )     (1,741,534 )                                                       BALANCE, DECEMBER 31, 2003      8,846,670      29,430,710       166,471       (4,382,297 )     34,061,554          Net income           3,419,408                 3,419,408     $ 3,419,408     Other comprehensive income:                                  Unrealized loss on available for sale securities, net of tax benefit of $67,624                (131,270 )          (131,270 )     (131,270 )                                       Comprehensive income                             $ 3,288,138                                         Cash dividends paid ($1.95 per share)           (1,291,144 )               (1,291,144 )        Purchase of Treasury Stock, at cost (7,302 shares)                     (699,614 )     (699,614 )                                                       BALANCE, DECEMBER 31, 2004      8,846,670      31,558,974       35,201       (5,081,911 )     35,358,934          Net income           4,210,868                 4,210,868     $ 4,210,868     Other comprehensive income:                                  Unrealized loss on available for sale securities, net of tax benefit of $51,483                (99,937 )          (99,937 )     (99,937 )                                       Comprehensive income                             $ 4,110,931                                         Cash dividends paid ($2.20 per share)           (1,437,738 )               (1,437,738 )        Purchase of Treasury Stock, at cost (9,726 shares)                     (982,824 )     (982,824 )                                                       BALANCE, DECEMBER 31, 2005    $ 8,846,670    $ 34,332,104     $ (64,736 )   $ (6,064,735 )   $ 37,049,303                                                        See accompanying notes to the consolidated financial statements.    -5-    Killbuck Bancshares, Inc.  CONSOLIDATED STATEMENT OF CASH FLOWS                         Year Ended December 31,         2005     2004     2003     OPERATING ACTIVITIES                   Net income    $ 4,210,868     $ 3,419,408     $ 3,208,820     Adjustments to reconcile net income to net cash provided by operating activities:                   Provision for loan losses      376,722       225,000       390,000     Depreciation, amortization and accretion, net      282,704       395,031       541,810     Gain on sale of loans, net      (72,492 )     (62,777 )     (240,885 )   Origination of loans held for sale      (12,287,154 )     (11,567,660 )     (22,109,417 )   Proceeds from the sale of loans      12,432,545       11,984,386       22,248,602     Federal Home Loan Bank stock dividend      (55,200 )     (46,500 )     (45,300 )   Net changes in:                   Accrued interest and other assets      (196,631 )     (2,838,759 )     166,875     Accrued interest and other liabilities      457,997       39,800       (190,244 )                              Net cash provided by operating activities      5,149,359       1,547,929       3,970,261                                INVESTING ACTIVITIES                   Investment securities available for sale:                   Proceeds from maturities and repayments      5,246,396       8,202,151       32,954,112     Purchases      (9,951,484 )     (563,104 )     (12,031,475 )   Investment securities held to maturity:                   Proceeds from maturities and repayments      5,743,430       4,843,728       5,571,974     Purchases      (396,456 )     (235,000 )     (4,681,460 )   Net decrease (increase) in loans      7,542,647       (15,758,177 )     (26,535,632 )   Purchase of premises and equipment      (1,269,333 )     (329,272 )     (314,933 )                              Net cash provided by (used in) investing activities      6,915,200       (3,839,674 )     (5,037,414 )                              FINANCING ACTIVITIES                   Net increase in deposits      3,000,389       5,624,947       2,685,183     Proceeds from Federal Home Loan Bank advances      1,700,000       6,035,000       —       Repayment of Federal Home Loan Bank advances      (2,556,291 )     (2,634,463 )     (822,861 )   Net decrease in short-term borrowings      (120,000 )     (635,000 )     (564,993 )   Purchase of treasury shares      (982,824 )     (699,614 )     (1,741,534 )   Cash dividends paid      (1,437,738 )     (1,291,144 )     (1,240,872 )                              Net cash (used in) provided by financing activities      (396,464 )     6,399,726       (1,685,077 )                              Increase (decrease) in cash and cash equivalents      11,668,095       4,107,981       (2,752,230 )        Cash and cash equivalents at beginning of year      21,663,199       17,555,218       20,307,448                                Cash and cash equivalents at end of year    $ 33,331,294     $ 21,663,199     $ 17,555,218                               See accompanying notes to the consolidated financial statements.    -6-    Killbuck Bancshares, Inc.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  A summary of the significant accounting and reporting policies applied in the presentation of the consolidated financial statements follows:  Nature of Operations and Basis of Presentation  Killbuck Bancshares, Inc. (the “Company”) is an Ohio corporation organized as the holding company of The Killbuck Savings Bank Company (the “Bank”). The Bank is a state-chartered bank located in Ohio. The Company and its subsidiary operate in the single industry of commercial banking and derive substantially all their income from banking and bank-related services which include interest earnings on residential real estate, commercial mortgage, commercial and consumer loan financing as well as interest earnings on investment securities and charges for deposit services to its customers through nine full service branches and one loan production office. The Board of Governors of the Federal Reserve System supervises the Company and Bank, while the Bank is also subject to regulation and supervision by the Ohio Division of Financial Institutions.  The consolidated financial statements of the Company include its wholly owned subsidiary, the Bank. All intercompany transactions have been eliminated in consolidation. The investment in subsidiary on the parent company financial statements is carried at the parent company’s equity in the underlying net assets.  The accounting principles followed by the Company and the methods of applying these principles conform with U.S. generally accepted accounting principles and with general practice within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the consolidated balance sheet date and related revenues and expenses for the period. Actual results may differ significantly from those estimates.  Investment Securities  Investment securities are classified, at the time of purchase, based upon management’s intention and ability, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount which are computed using the level yield method. Certain other debt and equity securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses on available for sale securities are reported as a separate component of shareholders’ equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.  Common stock of the Federal Home Loan Bank, Federal Reserve Bank and Great Lakes Bankers Bank represent ownership in institutions, which are wholly-owned by other financial institutions. These securities are accounted for at cost and are classified with other assets.  Bank-Owned Life Insurance (BOLI)  The Company purchased life insurance policies on certain key employees. BOLI is recorded at its cash surrender value or the amount that can be realized.    -7-    Loans  Loans are stated at their outstanding principal, less the allowance for loan losses and any net deferred loan fees. Interest income on loans is recognized on the accrual method. Accrual of interest on loans is generally discontinued when it is determined that a reasonable doubt exists as to the collectibility of principal, interest, or both. Loans are returned to accrual status when past due interest is collected, and the collection of principal is probable.  Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.  Mortgage loans originated and held for sale in the secondary market are carried at the lower of cost or market value determined on an aggregate basis. Net unrealized losses are recognized in a valuation allowance through charges to income. Gains and losses on the sale of loans held for sale are determined using the specific identification method. All loans are sold to Freddie Mac.  Allowance for Loan Losses  The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses which is charged to operations. The provision is based upon management’s periodic evaluation of individual loans, the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant change in the near term.  Impaired loans are commercial and commercial real estate loans for which it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired, provided the loan is not a commercial or commercial real estate classification. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.  Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all of the circumstances concerning the loan, the credit worthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed.    -8-    Premises and Equipment  Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is principally computed on the straight-line method over the estimated useful lives of the related assets, which range from three to ten years for furniture, fixtures and equipment and 25 to 50 years for building premises. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease terms, which range from seven to fifteen years. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized.  Real Estate Owned  Real estate acquired in settlement of loans is stated at the lower of the recorded investment in the property or its fair value minus estimated costs of sale. Prior to foreclosure the value of the underlying collateral is written down by a charge to the allowance for loan losses if necessary. Any subsequent write-downs are charged against operating expenses. Operating expenses of such properties, net of related income and losses on their disposition, are included in other expenses.  Intangible Assets and Liabilities  Goodwill represents the amount by which the market value of the stock issued in the merger of Commercial Saving Bank Co. (Commercial) of Danville, Ohio with and into The Killbuck Savings Bank Company exceeded the market value of the assets, liabilities and capital of Commercial on the date of the merger. As of December 31, 2005 and 2004 respectively, net goodwill was $1,329,249 and $1,329,249. The Company adopted Statement of Financial Accounting Standards (“FAS”) No. 142, Goodwill and Other Intangible Assets, which changed the accounting for goodwill from an amortization method to an impairment-only approach. This statement eliminates the regularly scheduled amortization of goodwill and replaces this method with a two-step process for testing the impairment of goodwill on at least an annual basis. This approach could cause more volatility in the Company’s reported net income because impairment losses, if any, could occur irregularly and in varying amounts.  Mortgage Servicing Rights (“MSRs”)  The Company has agreements for the express purpose of selling loans in the secondary market. The Company maintains all servicing rights for these loans. Originated MSRs are recorded by allocating total costs incurred between the loan and servicing rights based on their relative fair values. MSRs are amortized in proportion to the estimated servicing income over the estimated life of the servicing portfolio. Impairment is evaluated based on the fair value of the right, based on portfolio interest rates and prepayment characteristics. MSRs are a component of other assets on the Consolidated Balance Sheet.  Employee Benefits Plans  The Bank maintains an integrated money purchase pension plan and a 401(K) plan covering eligible employees. The Bank’s contributions are based upon the plan’s contribution formula.    -9-    Recent Accounting Pronouncements  In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS No. 123R). FAS No. 123R revised FAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. FAS No. 123R will require compensation costs related to share-based payment transactions to be be recognized in the fianancial statement (with limited exceptions). The amount of compensation cost will be measure based on the grant-date fair value of the equity or liabiliaty instruments issed. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.  In April 2005, the Securities and Exchange Commission adopted a new rule that amends the compliance dates for FAS No. 123R. The Statement requires that compensation cost relating to share-based payment transactions be recognized in financial statements and that this cost be measured based on the fair value of the equity or liability instruments issued. FAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will adopt FAS No. 123R on January 1, 2006.  In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of FAS No. 123R, and the disclosures in MD&A subsequent to the adoption. The Company will provide SAB No. 107 required disclosures upon adoption of FAS No. 123R on January 1, 2006.  In December 2004, FASB issued FAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. FAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of FAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.  In June 2005, the FASB issued FAS No. 154, Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. FAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impractical. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS No.154 improves the financial reporting because its requirements enhance the consistency of financial reporting between periods. The provisions of FAS No. 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.    -10-    Income Taxes  The Company and its subsidiary file a consolidated federal income tax return. Income tax expense is allocated among the parent company and the subsidiary as if each had filed a separate return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period.  Earnings Per Share  The Company currently maintains a simple capital structure; therefore, there are no dilutive effects on earnings per share. As such, earnings per share are calculated using the weighted average number of share outstanding for the period.  Comprehensive Income  The Company is required to present comprehensive income in a full set of general purpose financial statements for all periods presented. Other comprehensive income is comprised exclusively of unrealized holding gains and losses on the available for sale securities portfolio. The Company has elected to report the effects of other comprehensive income as part of the Consolidated Statement of Changes in Shareholders’ Equity.  Cash Flow Information  For purposes of reporting cash flows, cash and cash equivalents include cash and amounts due from financial institutions and federal funds sold. Cash payments for interest in 2005, 2004 and 2003 were $4,086,202, $3,275,495, and $4,082,922, respectively. Cash payments for income taxes for 2005, 2004, and 2003 were $1,233,912, $883,858, and $940,517 respectively.  Reclassification of Comparative Amounts  Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on shareholders’ equity or net income.  2. FEDERAL FUNDS SOLD  Federal funds sold at December 31 consists of the following:                       2005    2004   Institution    Maturity    Balance    Maturity    Balance   National City Bank    1-02-06    $ 10,600,000    1-02-05    $ 7,100,000   Great Lakes Bankers Bank    1-02-06      7,700,000    1-02-05      2,400,000                                  $ 18,300,000        $ 9,500,000                            -11-    3. INVESTMENT SECURITIES  The amortized cost of securities and their estimated market values are as follows:                     Securities available for sale                           2005       AmortizedCost    GrossUnrealizedGains    GrossUnrealizedLosses     Fair Value   Obligations of U.S. Government Agencies and Corporations    $ 14,405,286    $ 12,921    $ 111,007    $ 14,307,200                                 Total    $ 14,405,286    $ 12,921    $ 111,007    $ 14,307,200                                        2004       AmortizedCost    GrossUnrealizedGains    GrossUnrealizedLosses     Fair Value   Obligations of U.S. Government Agencies and Corporations    $ 9,700,775    $ 93,480    $ 40,145    $ 9,754,110                                 Total    $ 9,700,775    $ 93,480    $ 40,145    $ 9,754,110                                       Securities held to maturity                              2005       AmortizedCost    GrossUnrealizedGains    GrossUnrealizedLosses     Fair Value   Obligations of States and Political Subdivisions    $ 30,770,829    $ 996,010    $ 69,932    $ 31,696,907                                 Total    $ 30,770,829    $ 996,010    $ 69,932    $ 31,696,907                                        2004       AmortizedCost    GrossUnrealizedGains    GrossUnrealizedLosses     Fair Value   Obligations of States and Political Subdivisions    $ 35,564,141    $ 1,955,536    $ 29,684    $ 37,489,993   Corporate Securities      451,176      6,199      —        457,375                                 Total    $ 36,015,317    $ 1,961,735    $ 29,684    $ 37,947,368                                  -12-    3. INVESTMENT SECURITIES (CONTINUED)  The amortized cost and fair market values of debt securities at December 31, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.                         Available For Sale    Held to Maturity       AmortizedCost     Fair Value    AmortizedCost     Fair Value   Due in one year or less    $ 2,000,000    $ 1,983,750    $ 3,571,288    $ 3,597,245   Due after one year through five years      11,161,298      11,108,139      14,706,178      15,134,909   Due after five through ten years      834,121      818,734      12,297,818      12,771,615   Due after ten years      409,867      396,577      195,545      193,138                                    $ 14,405,286    $ 14,307,200    $ 30,770,829    $ 31,696,907                                Investment securities with an approximate carrying value of $32,595,000 and $38,141,000 at December 31, 2005 and 2004, respectively were pledged to secure public deposits, securities sold under agreement to repurchase and for other purposes as required or permitted by law.  The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2005 and 2004. As of December 31, 2005, there were a total of 38 securities in a loss position.                               2005        Less Than Twelve Months     Twelve Months or Greater    Total        Fair Value    GrossUnrealizedLosses     Fair Value    GrossUnrealizedLosses     Fair Value    GrossUnrealizedLosses   U.S. Government agencies and corporations    $ 7,687,525    $ 63,972    $ 2,505,467    $ 47,035    $ 10,192,992    $ 111,007   Obligations of states and Political subdivisions      2,249,380      23,085      1,599,113      46,847      3,848,493      69,932                                               Total debt securities    $ 9,936,905    $ 87,057    $ 4,104,580    $ 93,882    $ 14,041,485    $ 180,939                                                      2004        Less Than Twelve Months     Twelve Months or Greater    Total        Fair Value    GrossUnrealizedLosses     Fair Value    GrossUnrealizedLosses     Fair Value    GrossUnrealizedLosses   U.S. Government agencies and corporations    $ 1,420,010    $ 22,075    $ 1,214,914    $ 18,070    $ 2,634,924    $ 40,145   Obligations of states and Political subdivisions      2,005,933      16,117      457,993      13,567      2,463,926      29,684                                               Total debt securities    $ 3,425,943    $ 38,192    $ 1,672,907    $ 31,637    $ 5,098,850    $ 69,829                                              The Company’s investment securities portfolio contains unrealized losses of direct obligations of the U.S. Government securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government, and debt obligations of a U.S. state or political subdivision.    -13-    3. INVESTMENT SECURITIES (CONTINUED)  On a monthly basis, the Company evaluates, the severity and duration of impairment for its investment securities portfolio. Unless the Company has the ability to hold the security to maturity without incurring a loss, impairment is considered other than temporary when an investment security has sustained a decline of ten percent or more for six months.  The Company has concluded that any impairment of its investment securities portfolio is not other than temporary, but is the result of interest rate changes that are not expected to result in the noncollection of principal and interest, during the period.  4. LOANS  Major classification of loans are summarized as follows:                     2005     2004     Real estate – residential    $ 90,976,398     $ 97,811,648     Real estate – farm      14,550,237       12,308,653     Real estate – commercial      47,312,047       47,226,324     Real estate – construction      9,446,729       10,999,833     Commercial and other loans      38,399,400       40,751,867     Consumer and credit loans      8,216,453       8,074,908                             208,901,264       217,173,233     Less allowance for loan losses      (2,313,312 )     (2,645,981 )   Less net deferred loan fees      (346,006 )     (365,937 )                      Loans, net    $ 206,241,946     $ 214,161,315                       Loans held for sale at December 31, 2005 and 2004 were $94,600 and $167,500 respectively. Real estate loans serviced for Freddie Mac, which are not included in the consolidated balance sheet, totaled $50,287,462 and $44,545,402 at December 31, 2005 and 2004, respectively. The Bank is currently collecting a fee of .25% for servicing these loans.  Total nonaccrual loans and the related interest for the years ended December 31 are as follows. In management’s opinion, these loans did not meet the definition of impaired loans.                      2005    2004    2003   Principal outstanding    $ 631,791    $ 1,094,922    $ 220,098   Contractual interest due    $ 31,115    $ 38,263    $ 6,560   Interest income recognized    $ —      $ —      $ —    The Company’s primary business activity is with customers located within its local trade area. Residential, commercial, personal, and agricultural loans are granted. The Company also selectively funds loans originated outside of its trade area provided such loans meet its credit policy guidelines. Although the Company has a diversified loan portfolio at December 31, 2005 and 2004, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area.  The Bank entered into transactions with certain directors, executive officers, significant stockholders, and their affiliates. A summary of loan activity for those directors, executive officers, and their associates with loan balances in excess of $60,000 for the year ended December 31, 2005 is as follows:                Balance December 31, 2004   Additions   Amounts Collected   Balance December 31, 2005  $4,028,580   $91,605   $766,956   $ 3,353,229    -14-    5. ALLOWANCE FOR LOAN LOSSES  An analysis of the change in the allowance for loan losses follows:                         2005     2004     2003     Balance, January 1    $ 2,645,981     $ 2,701,943     $ 2,325,560     Add:                   Provision charged to operations      376,722       225,000       390,000     Loan recoveries      74,953       74,942       106,885     Less: Loans charged off      (784,343 )     (355,904 )     (120,502 )                              Balance, December 31    $ 2,313,313     $ 2,645,981     $ 2,701,943                               6. PREMISES AND EQUIPMENT  Premises and equipment are summarized as follows:                     2005     2004     Land    $ 1,775,541     $ 1,415,541     Building and improvements      4,165,964       4,115,367     Leasehold improvements      75,619       75,619     Furniture, fixtures and equipment      4,223,945       4,469,710     Other Real Estate Owned      700,000       —                               10,941,069       10,076,237     Less accumulated depreciation      (5,106,553 )     (5,126,442 )                      Total    $ 5,834,516     $ 4,949,795                       Depreciation expense charged to operations was $378,558 for 2005, $408,422 for 2004, and $492,257 for 2003.  7. GOODWILL  As of December 31, 2005 and 2004, goodwill had a gross carrying amount of $1,661,561 and an accumulated amortization amount of $332,312 resulting in a net carrying amount of $1,329,249.  The gross carrying amount of goodwill was tested for impairment in the second quarter. Due to an increase in overall earning asset growth, operating profits and cash flows were greater than expected for the reporting units. Based on fair value of the reporting unit, estimated using the expected present value of future cash flows, no goodwill impairment loss was recognized in the current year.  8. DEPOSITS  Time deposits include certificates of deposit in denominations of $100,000 or more. Such deposits aggregated $38,459,171 and $34,479,668 at December 31, 2005 and 2004, respectively.  Interest expense on certificates of deposit $100,000 and over amounted to $1,010,191 in 2005, $661,560 in 2004, and $855,558 in 2003.  The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 2005.            3 months or less    $  9,465,278   Over 3 through 6 months      5,844,205   Over 6 through 12 months      10,537,405   Over 12 months      12,612,283            Total    $ 38,459,171             -15-    8. DEPOSITS (CONTINUED)  The following table sets forth the remaining maturity of all time deposits at December 31, 2005.            12 month or less    $  66,892,252   12 months through 24 months      19,217,544   24 months through 36 months      11,994,124   36 months through 48 months      8,857,700   48 months through 60 months      2,929,905   Over 60 months      18,692               $ 109,910,217           9. SHORT-TERM BORROWINGS  Short-term borrowings consist of securities sold under agreements to repurchase. These retail repurchase agreements are with customers in their respective loan market areas. These borrowings are collateralized with securities owned by the Company and held in their safekeeping account at an independent correspondent bank. The outstanding balances and related information for short-term borrowings are summarized as follows:                     2005     2004     Short-term borrowings:              Ending balance    $ 3,610,000     $ 3,730,000     Maximum month-end balance during the year      5,275,000       4,480,000     Average month-end balance during the year      4,159,999       3,624,583     Weighted average at year end      1.96 %     .13 %   Weighted average rate during the year      1.14 %     .13 %  The Company has pledged investment securities with carrying values of $4,944,376 and $5,005,625 as of December 31, 2005 and 2004, respectively, as collateral for the repurchase agreements.  10. FEDERAL HOME LOAN BANK ADVANCES  The Federal Home Loan Bank advances have monthly principal and interest payments due with maturity dates from 2006 through 2017. Interest rates range from 3.10% to 8.90% on the advances. The scheduled aggregate minimum future principal payments on the advances outstanding as of December 31, 2005 are as follows:            Year Ending December 31,    Amount   2006    $ 2,719,123   2007      692,106   2008      670,215   2009      651,825   2010      569,105   2011 and thereafter      686,677            Total    $ 5,989,051           The Bank maintains a credit arrangement with Federal Home Loan Bank of Cincinnati, Ohio (“FHLB”). The FHLB borrowings, when used, are collateralized by the Bank’s investment in Federal Home Loan Bank stock and a blanket collateral pledge agreement with FHLB under which the Bank has pledged certain qualifying assets equal to 150 percent of the unpaid amount of the outstanding balances. At December 31, 2005 the Bank had a borrowing capacity of approximately $40.5 million with the FHLB. At December 31, 2005 and 2004 there was $5,989,051 and $6,845,342, respectively borrowed against this credit arrangement.    -16-    11. EMPLOYEE BENEFIT PLANS  The Bank maintains an integrated money purchase pension plan and a 401(k) plan.  Under the integrated money purchase pension plan contribution formula, the Bank, for each plan year, will contribute an amount equal to 8% of an employee’s compensation for the plan year and 5.7% of the amount of an employee’s excess compensation for the plan year. Excess compensation is a participant’s compensation in excess of the designated integration level. This designated integration level is 100% of the taxable wage base in effect at the beginning of the plan year. The federal government annually adjusts the taxable wage base. This plan does not permit nor require employees to make contributions to the plan.  The 401(k) plan allows employees to make salary reduction contributions to the plan up to 20% of a participant’s compensation. For each plan year, the Bank may contribute to the plan an amount of matching contributions for a particular plan year. The Bank may choose not to make matching contributions for a particular plan year. For 2005 and 2004 the Bank matched 25% of the employees’ voluntary contributions up to 1% of the employee’s compensation.  Both plans cover substantially all employees with one year of service and attained age 21. For 2005, the annual contribution to a participant’s retirement account may not exceed $42,000.  The pension costs charged to operating expense for the years 2005, 2004 and 2003 amounted to $275,660, $253,812 and $237,540, respectively.  12. OTHER OPERATING EXPENSE  Other operating expense included the following:                      2005    2004    2003   Professional fees    $ 313,062    $ 190,389    $ 231,217   Franchise tax      438,630      433,920      398,931   Telephone      158,748      154,739      131,249   Stationery, supplies and printing      160,646      165,140      166,304   Postage, express and freight      155,388      156,279      146,537   Data processing      148,822      167,532      160,268   Other      1,014,020      928,677      1,043,534                          Total    $ 2,389,316    $ 2,196,676    $ 2,278,040                         13. OPERATING LEASES  The bank leases the space housing the German Village branch located in Berlin, Ohio. The lease expires in eight years, with an option to automatically renew for an additional ten year period. Minimum future rental payments are as follows:            Less than 1 year    $  18,900   1 to 3 years      37,800   3 to 5 years      38,942   Greater than 5 years      294,441               $ 390,083           14. INCOME TAXES  The provision for federal income taxes for the years ended December 31 consist of:                        2005     2004    2003     Current payable    $ 1,516,365     $ 884,920    $ 806,521     Deferred      (2,897 )     96,257      (64,158 )                             Total provision    $ 1,513,468     $ 981,177    $ 742,363                                -17-    14. INCOME TAXES (CONTINUED)  The following is a reconcilement between the actual provision for federal income taxes and the amount of income taxes, which would have been provided at statutory rates for the year ended December 31:                                  2005     2004     2003         Amount     % ofPre-TaxIncome     Amount     % ofPre-TaxIncome     Amount     % ofPre-TaxIncome     Provision at statutory rate    $ 1,946,274     34.0 %   $ 1,496,199     34.0 %   $ 1,343,402     34.0 %   Tax exempt income      (519,659 )   (9.1 )%     (579,220 )   (13.2 )     (622,791 )   (15.7 )   Non-deductible interest Expense      33,291     0.6       30,376     .7       40,364     1.00     Other, net      53,562     0.9       33,822     .7       (18,612 )   (.5 )                                                Tax expense and effective rate    $ 1,513,468     26.4 %   $ 981,177     22.2 %   $ 742,363     18.8 %                                               The tax effects of deductible and taxable temporary differences that gave rise to significant portions of the net deferred tax assets and liabilities at December 31 are as follows:                   2005    2004   Deferred Tax Assets:             Allowance for loan losses    $ 786,526    $ 705,680   Deferred loan fees      5,075      7,115   Net unrealized loss on securities      33,349      —     Deferred tax asset      824,950      712,795   Deferred Tax Liabilities:             Premise and equipment      316,520      298,375   Stock dividends      194,344      175,576   Net unrealized gain on securities      —        18,136   Other, net      130,871      86,081                   Deferred tax liabilities      641,735      578,168                   Net deferred tax assets    $ 183,215    $ 134,627                  No valuation allowance was established at December 31, 2005 and 2004 in view of certain tax strategies coupled with the anticipated future taxable income as evidenced by the company’s earnings potential.  15. COMMITMENTS AND CONTINGENT LIABILITIES  Commitments  In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheet.  These commitments were comprised of the following at December 31:                   2005    2004   Commitments to extend credit    $ 35,011,000    $ 40,136,000   Standby letters of credit      730,000      529,000                   Total    $ 35,741,000    $ 40,665,000                    -18-    15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)  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 amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.  Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The fees earned from issuance of letters are recognized at the origination of the coverage period. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.  The Company has not been required to perform any financial guarantees during the past two years. The Company has not incurred any losses on its commitments in either 2005 or 2004.  Contingent Liabilities  The Company and its subsidiary are subject to claims and lawsuits which arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.  16. REGULATORY MATTERS  The approval of regulatory authorities is required if the total of all dividends declared by the Bank in any calendar year exceeds net profits as defined for that year combined with its retained net profits for the two preceding calendar years less any required transfers to surplus. Under this formula, the amount available for payment of dividends by the Bank to the Company in 2005, without the approval of the regulatory authorities, is approximately $3,122,920 plus 2006 profits retained up to the date of the dividend declaration.  Included in cash and due from banks are required federal reserves of $3,957,000 and $3,866,000 at December 31, 2005 and 2004, respectively, for facilitating the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of cash on hand and/or balances maintained directly with the Federal Reserve Bank.  Federal law prevents the Company from borrowing from the Bank unless the loans are secured by specific obligations. Further, such secured loans are limited in amount to ten percent of the Bank’s capital. The Company had no such borrowings at December 31, 2005 and 2004.  17. REGULATORY CAPITAL REQUIREMENTS  Federal regulations require the Company and the Bank to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average total assets.  In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital categories ranging from “well capitalized” to “critically undercapitalized.” Should any institution fail to meet the requirements to be considered “adequately capitalized,” it would become subject to a series of increasingly restrictive regulatory actions.    -19-    17. REGULATORY CAPITAL REQUIREMENTS (CONTINUED)  As of December 31, 2005 and 2004, the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, Total risk-based, Tier I risk-based, and Tier I Leverage capital ratios must be at least ten percent, six percent, and five percent, respectively. There have been no conditions or events since notification that management believes have changed this category.  The Company’s actual capital ratios are presented in the following table, which shows the Company met all regulatory capital requirements. The capital position of the Bank does not differ significantly from the Company’s.                         2005     2004         Amount    Ratio     Amount    Ratio     Total Risk Based Capital (to Risk Weighted Assets)                      Actual    $ 38,098    17.38 %   $ 36,595    17.31 %   For Capital Adequacy Purposes      17,539    8.00       16,913    8.00     To be well capitalized      21,924    10.00       21,142    10.00           Tier 1 Capital (to Risk Weighted Assets)                      Actual    $ 35,785    16.32 %   $ 33,994    16.08 %   For Capital Adequacy Purposes      8,770    4.00       8,457    4.00     To be well capitalized      13,154    6.00       12,685    6.00           Tier 1 Capital (to Average Assets)                      Actual    $ 35,785    12.07 %   $ 33,994    11.54 %   For Capital Adequacy Purposes      11,854    4.00       11,785    4.00     To be well capitalized      14,818    5.00       14,732    5.00    18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS  The carrying amounts and estimated fair values at December 31 are as follows:                         2005    2004       CarryingAmount     Fair Value    CarryingAmount     Fair Value   Financial assets:                       Cash and due from banks    $ 15,031,294    $ 15,031,294    $ 12,163,199    $ 12,163,199   Federal funds sold      18,300,000      18,300,000      9,500,000      9,500,000   Securities available for sale      14,307,200      14,307,200      9,754,110      9,754,110   Securities held to maturity      30,770,829      31,696,907      36,015,317      37,947,368   Net loans      206,241,946      208,546,387      214,161,315      217,168,148   Loans held for sale      94,600      95,613      167,500      169,852   Accrued interest receivable      1,145,875      1,145,875      927,860      927,860   Regulatory Stock      1,589,010      1,589,010      1,533,810      1,533,810   BOLI      3,141,889      3,141,889      3,000,000      3,000,000   Financial liabilities:                       Deposits    $ 250,349,150    $ 242,227,000    $ 247,348,761    $ 246,138,000   Federal Home Loan Bank advances      5,989,051      6,010,000      6,845,342      6,906,000   Short term borrowings      3,610,000      3,610,000      3,730,000      3,730,000   Accrued interest payable      234,237      234,237      151,357      151,357    -20-    18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)  Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.  Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.  If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.  As certain assets and liabilities such as deferred tax assets and liabilities, premises and equipment and many other operational elements of the Company, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.  The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:  Cash and Due from Banks, Federal Funds Sold, Accrued Interest Receivable, Regulatory Stock, BOLI, Short-Term Borrowings, and Accrued Interest Payable  The fair value approximates the current carrying value.  Investment Securities and Loans Held for Sale  The fair value of investment securities and loans held for sale are equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.  Loans, Deposits, and Federal Home Loan Bank Advances  The fair value of loans is estimated by discounting the future cash flows using a simulation model which estimates future cash flows and constructs discount rates that consider reinvestment opportunities, operating expenses, non-interest income, credit quality, and prepayment risk. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year end. Fair values for time deposits and Federal Home Loan Bank advances are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for deposits and borrowings of similar remaining maturities.  Commitments to Extend Credit and Standby Letters of Credit  These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented previously in the commitments and contingent liabilities note.    -21-    19. PARENT COMPANY  The following are parent only condensed financial statements:  CONDENSED BALANCE SHEET                   December 31,       2005    2004   ASSETS             Cash    $ 338,484    $ 104,802   Dividends Cash      130,280      —     Investment in bank subsidiary      36,710,818      35,254,115   Federal income tax receivable      —        17                   Total assets    $ 37,179,582    $ 35,358,934                   LIABILITIES AND SHAREHOLDERS’ EQUITY             Dividend Checks Outstanding    $ 130,280    $ —     Shareholders’ equity      37,049,302      35,358,934                   Total liabilities and shareholders’ equity    $ 37,179,582    $ 35,358,934                  CONDENSED STATEMENT OF INCOME                         Year Ended December 31,         2005     2004     2003     INCOME                   Dividends from bank subsidiary    $ 2,750,000     $ 1,825,000     $ 3,110,000          Operating expenses      102,415       50       50                                Income before income taxes      2,647,585       1,824,950       3,109,950     Income tax benefit      (34,804 )     (17 )     (17 )                              Income before equity in undistributed net income of subsidiary      2,682,389       1,824,967       3,109,967          Equity in undistributed net income of subsidiary      1,528,479       1,594,441       98,853                                NET INCOME    $ 4,210,868     $ 3,419,408     $ 3,208,820                                 -22-    19. PARENT COMPANY (CONTINUED)  CONDENSED STATEMENT OF CASH FLOWS                         Year Ended December 31,         2005     2004     2003     OPERATING ACTIVITIES                   Net income    $ 4,210,868     $ 3,419,408     $ 3,208,820     Adjustments to reconcile net income to net cash provided by operating activities:                   Equity in undistributed net income of subsidiary      (1,528,479 )     (1,594,441 )     (98,853 )   (Increase) decrease in other assets      —         (17 )     —       Increase in other liabilities      51,198       —         —                                  Net cash provided by operating activities      2,733,587       1,824,950       3,109,967                                FINANCING ACTIVITIES                   Purchase of treasury shares      (982,824 )     (699,614 )     (1,741,534 )   Dividends paid      (1,437,738 )     (1,291,144 )     (1,240,872 )   Advance from subsidiary      50,937       —         —                                  Net cash used in financing activities      (2,369,625 )     (1,990,758 )     (2,982,406 )                              INCREASE (DECREASE) IN CASH      363,962       (165,808 )     127,561          CASH AT BEGINNING OF YEAR      104,802       270,610       143,049                                CASH AT END OF YEAR    $ 468,764     $ 104,802     $ 270,610                                 -23-    20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)  (IN THOUSANDS EXCEPT PER SHARE DATA)                         Three Months Ended       March2005     June 2005    September2005    December2005   Total interest income    $ 3,768    $ 4,018    $ 4,274    $ 4,558   Total interest expense      865      998      1,101      1,205                                 Net interest income      2,903      3,020      3,173      3,353   Provision for loan losses      75      75      30      197                                 Net interest income after provision for loans losses      2,828      2,945      3,143      3,156   Total other income      311      361      300      293   Total other expense      2,045      1,743      1,939      1,886                                 Income before income taxes      1,094      1,563      1,504      1,563   Income taxes      249      425      403      436                                 Net income    $ 845    $ 1,138    $ 1,101    $ 1,127                                 Per share data:                       Net earnings    $ 1.29    $ 1.73    $ 1.69    $ 1.73                                 Weighted average shares outstanding      657,046      656,402      653,225      650,482                                  -24-    20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)(CONTINUED)  (IN THOUSANDS EXCEPT PER SHARE DATA)                         Three Months Ended       March2004     June 2004    September2004    December2004   Total interest income    $ 3,386    $ 3,435    $ 3,522    $ 3,690   Total interest expense      812      779      817      856                                 Net interest income      2,574      2,656      2,705      2,834   Provision for loan losses      90      30      30      75                                 Net interest income after provision for loans losses      2,484      2,626      2,675      2,759   Total other income      245      250      262      258   Total other expense      1,746      1,883      1,708      1,821                                 Income before income taxes      983      993      1,229      1,196   Income taxes      210      211      282      279                                 Net income    $ 773    $ 782    $ 947    $ 917                                 Per share data:                       Net earnings    $ 1.16    $ 1.18    $ 1.43    $ 1.39                                 Weighted average shares outstanding      664,369      662,919      661,644      660,727                                  -25-      EX-31.1 7 dex311.htm SECTION 302 CEO CERTIFICATION   Section 302 CEO Certification   Exhibit 31.1  SECTION 302 CERTIFICATION  I, Luther Proper, Chief Executive Officer, of Killbuck Bancshares, Inc., certify that:      1. I have reviewed this annual report on Form 10-K of Killbuck Bancshares, Inc.;      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;      4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:        (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;        (b) [This paragraph intentionally left blank.]        (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and        (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and      5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):        (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and        (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.          Date: March 22, 2006     /s/ Luther Proper, CEO      Signature/Title      EX-31.2 8 dex312.htm SECTION 302 CFO CERTIFICATION   Section 302 CFO Certification   Exhibit 31.2  SECTION 302 CERTIFICATION  I, Diane Knowles, Chief Financial Officer, of Killbuck Bancshares, Inc., certify that:      1. I have reviewed this annual report on Form 10-K of Killbuck Bancshares, Inc.;      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;      4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:        (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;        (b) [This paragraph intentionally left blank.]        (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and        (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and      3. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):        (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and        (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.          Date: March 22, 2006     /s/ Diane Knowles, CEO      Signature/Title      EX-32.1 9 dex321.htm SECTION 906 CEO CERTIFICATION   Section 906 CEO Certification   Exhibit 32.1  CERTIFICATION PURSUANT TO  18 U.S.C. SECTION 1350,  AS ENACTED PURSUANT TO  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  In connection with the Annual Report of Killbuck Bancshares, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luther E. Proper, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:        (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934,; and        (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.          By:    /s/ Luther E. Proper     Luther E. Proper     Chief Executive Officer     March 22, 2006  A signed original of this written statement required by Section 906 has been provided to Killbuck Bancshares, Inc. and will be retained by Killbuck Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.      EX-32.2 10 dex322.htm SECTION 906 CFO CERTIFICATION   Section 906 CFO Certification   Exhibit 32.2  CERTIFICATION PURSUANT TO  18 U.S.C. SECTION 1350,  AS ENACTED PURSUANT TO  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  In connection with the Annual Report of Killbuck Bancshares, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Diane Knowles, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:      1. The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934,; and      2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.          By:    /s/ Diane S. Knowles     Diane S. Knowles     Chief Financial Officer     March 22, 2006  A signed original of this written statement required by Section 906 has been provided to Killbuck Bancshares, Inc. and will be retained by Killbuck Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.      -----END PRIVACY-ENHANCED MESSAGE-----