- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting Company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended September 30, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-24147

KILLBUCK BANCSHARES, INC.

(Exact name of registrant as specified in its Charter)

OHIO

34-1700284

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

165 N. Main Street, Killbuck, OH 44637

(Address of principal executive offices and zip code)

(330) 276-2771

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

State the number of shares outstanding for each of the issuer’s classes of common equity as of the latest practicable date:

Class: Common Stock, no par value

Outstanding at October 31, 2009: 616,716

KILLBUCK BANCSHARES, INC.

Index


		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheet as of September 30, 2009 and December 31, 2008	3

	Consolidated Statement of Income for the nine months ended September 30, 2009 and 2008	4

	Consolidated Statement of Income for the three months ended September 30, 2009 and 2008	5

	Consolidated Statement of Changes In Shareholders’ Equity for the nine months ended September 30, 2009	6

	Consolidated Statement of Cash Flows for the nine months ended September 30, 2009 and 2008	7

	Notes to Unaudited Consolidated Financial Statements	8-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Default Upon Senior Securities	26

Item 4.	Submissions of Matters to a Vote of Security Holders	26

Item 5.	Other Information	27

Item 6.	Exhibits	27

SIGNATURES		28

-2-

Killbuck Bancshares, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	September 30, 2009			December 31, 2008
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	24,195,239		$	31,868,633
Federal funds sold		5,470,000			8,448,000

Total cash and cash equivalents		29,665,239			40,316,633


Investment securities:
Securities available for sale		58,791,535			51,549,966
Time Deposits		980,000			—
Securities held to maturity (fair value of $37,985,921 and $33,265,569)		36,094,491			32,168,512

Total investment securities		95,866,026			83,718,478


Loans (net of allowance for loan losses of $2,464,242 and $2,525,202)		205,232,069			200,448,708

Loans held for sale		—			—
Premises and equipment, net		6,070,692			6,321,031
Accrued interest receivable		1,627,226			1,470,883
Goodwill, net		1,329,249			1,329,249
Other assets		7,916,543			7,732,841

Total assets	$	347,707,044		$	341,337,823


LIABILITIES
Deposits:
Noninterest bearing demand	$	48,823,410		$	52,971,305
Interest bearing demand		24,856,325			27,372,343
Money market		30,141,774			23,834,736
Savings		41,125,631			40,496,289
Time		151,900,852			144,272,233

Total deposits		296,847,992			288,946,906
Short-term borrowings		4,980,000			6,385,000
Federal Home Loan Bank advances		1,374,724			1,862,667
Accrued interest and other liabilities		920,355			1,207,652

Total liabilities		304,123,071			298,402,225


SHAREHOLDERS’ EQUITY

Common stock – No par value: 1,000,000 shares authorized, 718,431 issued		8,846,670			8,846,670
Retained earnings		44,014,419			42,461,137
Accumulated other comprehensive gain		208,943			643,359
Treasury stock, at cost (101,190 and 96,949 shares)		(9,486,059	)		(9,015,568	)

Total shareholders’ equity		43,583,973			42,935,598


Total liabilities and shareholders’ equity	$	347,707,044		$	341,337,823

See accompanying notes to the unaudited consolidated financial statements.

-3-

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)


	Nine Months Ended September 30,
	2009		2008
INTEREST INCOME
Interest and fees on loans	$	9,295,475	$	10,862,950
Federal funds sold		36,524		454,919
Investment securities:
Taxable		1,663,897		2,118,229
Exempt from federal income tax		1,059,279		996,637

Total interest income		12,055,175		14,432,735


INTEREST EXPENSE
Deposits		3,354,635		5,033,074
Short term borrowings		9,198		14,410
Federal Home Loan Bank advances		70,630		97,533

Total interest expense		3,434,463		5,145,017


NET INTEREST INCOME		8,620,712		9,287,718

Provision for loan losses		2,000		—


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		8,618,712		9,287,718


NON INTEREST INCOME
Service charges on deposit accounts		287,317		277,336
NSF & OD fees, net		572,574		622,529
Gain on sale of loans, net		108,430		27,227
BOLI		177,519		396,405
Other income		111,099		117,875

Total non interest income		1,256,939		1,441,372


NON INTEREST EXPENSE
Salaries and employee benefits		3,790,555		3,823,922
Occupancy and equipment expense		768,672		798,565
Professional fees		290,999		253,912
Data Processing		151,266		151,526
Insurance & Bond		334,671		57,455
Franchise tax		390,761		375,274
Other expenses		988,425		1,016,017

Total non interest expense		6,715,349		6,476,671


INCOME BEFORE INCOME TAXES		3,160,302		4,252,419
Income taxes		709,688		841,244


NET INCOME	$	2,450,614	$	3,411,175


Earning per common share	$	3.95	$	5.43


Dividend per share	$	1.45	$	1.45


Weighted Average shares outstanding		619,054		628,356

See accompanying notes to the unaudited consolidated financial statements.

-4-

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)


	Three Months Ended September 30,
	2009		2008
INTEREST INCOME
Interest and fees on loans	$	3,023,714	$	3,447,195
Federal funds sold		12,443		122,908
Investment securities:
Taxable		492,975		704,782
Exempt from federal income tax		363,707		342,897

Total interest income		3,892,839		4,617,782


INTEREST EXPENSE
Deposits		1,059,251		1,493,831
Short term borrowings		2,850		3,120
Federal Home Loan Bank advances		21,283		30,119

Total interest expense		1,083,384		1,527,070


NET INTEREST INCOME		2,809,455		3,090,712

Provision for loan losses		—		—


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,809,455		3,090,712


NON INTEREST INCOME
Service charges on deposit accounts		102,843		96,842
NSF & OD fees, net		198,827		197,751
Gain on sale of loans, net		17,738		3,390
BOLI		58,960		55,891
Other income		35,881		39,493

Total non interest income		414,249		393,367


NON INTEREST EXPENSE
Salaries and employee benefits		1,305,694		1,314,133
Occupancy and equipment expense		258,193		255,327
Professional fees		94,894		70,652
Data Processing		52,846		47,474
Insurance & Bond		103,829		21,278
Franchise tax		131,826		126,734
Other expenses		333,130		350,604

Total non interest expense		2,280,412		2,186,202


INCOME BEFORE INCOME TAXES		943,292		1,297,877
Income taxes		199,711		199,624


NET INCOME	$	743,581	$	1,098,253


Earning per common share	$	1.20	$	1.75


Dividend per share	$	.00	$	.00


Weighted Average shares outstanding		617,932		627,404

See accompanying notes to the unaudited consolidated financial statements.

-5-

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED September 30, 2009


	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total Shareholders’ Equity			Comprehensive Income (Loss)
Balance, December 31, 2008	$	8,846,670	$	42,461,137		$	643,359		$	(9,015,568	)	$	42,935,598
Net income				2,450,614									2,450,614		$	2,450,614
Purchase of Treasury stock, at cost (4,241 shares)										(470,491	)		(470,491	)
Cash dividends paid ($1.45 per share)				(897,332	)								(897,332	)
Other comprehensive income:
Net unrealized (loss) on securities, net of tax $223,790							(434,416	)					(434,416	)		(434,416	)

Comprehensive income															$	2,016,198


Balance, September 30, 2009	$	8,846,670	$	44,014,419		$	208,943		$	(9,486,059	)	$	43,583,973

See accompanying notes to the unaudited consolidated financial statements.

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Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
	2009			2008
OPERATING ACTIVITIES
Net income	$	2,450,614		$	3,411,175
Adjustments to reconcile net income to net cash provided by Operating activities:
Provision for loan losses		2,000			—
Gain on sale of loans		(108,430	)		(27,227	)
Provision for depreciation and amortization		760,713			356,888
Origination of loans held for sale		(13,970,350	)		(2,922,600	)
Proceeds from the sale of loans		14,078,780			3,119,827
Federal Home Loan Bank stock dividend		—			(35,300	)
Bank Owned Life Insurance (BOLI) benefit income		—			(234,396	)
Net change in:
Accrued interest and other assets		(333,067	)		(1,002,683	)
Accrued expenses and other liabilities		(70,486	)		(157,540	)

Net cash provided by operating activities		2,809,774			2,508,144


INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments		26,013,858			14,179,846
Purchases		(34,306,322	)		(17,487,043	)
Bank CDs – Purchases		(1,715,000	)		—
Bank CDs – Proceeds from Maturities		735,000			—
Investment securities held to maturity:
Proceeds from maturities and repayments		1,564,701			544,851
Purchases		(5,529,969	)		(3,659,588	)
Net increase in loans		(4,785,361	)		(1,774,270	)
Net Purchase of premises and equipment		(78,395	)		(226,193	)
Bank Owned Life Insurance (BOLI)
Proceeds		—			395,915
Purchases		—			(2,000,000	)

Net cash used in investing activities		(18,101,488	)		(10,026,482	)


FINANCING ACTIVITIES
Net increase in demand, money market and savings deposits		272,467			9,197,655
Net increase (decrease) in time deposits		7,628,619			(6,443,209	)
Net decrease in short term borrowings		(1,405,000	)		(345,000	)
Repayments of Federal Home Loan Bank advances		(487,943	)		(505,059	)
Purchase of Treasury stock		(470,491	)		(486,204	)
Dividends paid		(897,332	)		(909,464	)

Net cash provided by financing activities		4,640,320			508,719


Net decrease in cash and cash equivalents		(10,651,394	)		(7,009,619	)
Cash and cash equivalents at beginning of period		40,316,633			41,172,750

Cash and cash equivalents at end of period	$	29,665,239		$	34,163,131


Supplemental Disclosures of Cash Flows Information
Cash Paid During the Period For:
Interest on deposits and borrowings	$	3,499,519		$	5,298,928


Income taxes	$	606,735		$	1,019,193

See accompanying notes to the unaudited consolidated financial statements.

-7-

Killbuck Bancshares, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Killbuck Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary Killbuck Savings Bank Company (the “Bank”). All significant intercompany balances and transactions have been eliminated in the consolidation.

The accompanying reviewed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information that would be included in audited financial statements. The information furnished reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results of operations. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

These statements should be read in conjunction with the consolidated statements of and for the year ended December 31, 2008 and related notes which are included on the Form 10-K (file no. 000-24147).

NOTE 2 – 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 number of shares for the period.

NOTE 3 – COMPREHENSIVE INCOME

The Company is required to present comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is comprised of the following:


	Nine Months Ended September 30, 2009			Nine Months Ended September 30, 2008
Net income	$	2,450,614		$	3,411,175
Other comprehensive income:
Net unrealized (loss) gain on securities		(658,205	)		(378,769	)
Tax effect		223,789			51,342

Total comprehensive income	$	2,016,198		$	3,083,748


	Three Months Ended September 30, 2009			Three Months Ended September 30, 2008
Net income	$	743,581		$	1,098,253
Other comprehensive income:
Net unrealized (loss) gain on securities		(52,402	)		(968	)
Tax effect		17,817			(60,335	)

Total comprehensive income	$	708,996		$	1,036,950

-8-

NOTE 4 – DISCLOSURES ABOUT FAIR VALUE ASSETS AND LIABILITIES

Fair Value Measurements. The Fair Value Measurements Topic of the FASB Accounting Standards Codification (“FASB ASC”) defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB ASC Topic 820-10-20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820-10-55 established a fair value hierarchy that emphasizes use of observable inputs and minimizes use of unobservable inputs when fair value. The standard describes three levels of inputs that may be used to measure fair value:


Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:		Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:		Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheet measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at September 30, 2009.


	September 30, 2009
	Level I		Level II		Level III		Total
	(In thousands)
Assets:
Securities available for sale	$	—	$	58,791,535	$	—	$	58,791,535
Loans held for sale		—		—		—		—

-9-

NOTE 5 – FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values at September 30, 2009 and December 31, 2008 are as follows:


	2009				2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and due from depository institutions	$	24,195,239	$	24,195,239	$	31,868,633	$	31,868,633
Federal funds sold		5,470,000		5,470,000		8,448,000		8,448,000
Securities available for sale		58,791,535		58,791,535		51,549,966		51,549,966
Time Deposits		980,000		980,000		—		—
Securities held to maturity		36,094,491		37,985,921		32,168,512		33,265,569
Net loans		205,232,069		212,319,000		200,448,708		211,277,000
Loans held for sale		—		—		—		—
Accrued interest receivable		1,627,226		1,627,226		1,470,833		1,470,883
Regulatory Stock		1,734,560		1,734,560		1,734,560		1,734,560
Bank Owned Life Insurance		5,607,180		5,607,180		5,442,906		5,442,906

Financial liabilities:
Deposits	$	296,847,992	$	299,855,140	$	288,946,906	$	292,313,673
Short term borrowings		4,980,000		4,980,000		6,385,000		6,385,000
Federal Home Loan Bank advances		1,374,724		1,570,000		1,862,667		2,180,000
Accrued interest payable		180,190		180,190		245,247		245,247

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.

-10-

NOTE 5 – FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS CONTINUED

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 is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year end. The fair values of certificates of deposit and other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, Savings, and money market deposits are valued at the amount payable on demand as of year-end.

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.

NOTE 6 – SUBSEQUENT EVENTS

Subsequent events have been evaluated for potential recognition and disclosure in the consolidated financial statements through November 4, 2009, which is the date the financial statements were available to be issued. No events were identified that would require adjustment to or disclosure in the financial statements.

-11-

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS

On January 1, 2009, the Company adopted a new standard which requires, among other things, the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The adoption of this standard had no effect on the Company’s financial statements.

On January 1, 2009, the Company adopted a new standard which establishes accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The standard defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The adoption of this standard had no effect on the Company’s financial statements.

In April 2009, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on the recognition and presentation of OTTI. This guidance amends current OTTI guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. This guidance does not amend existing recognition and measurement guidance related to OTTI of equity securities. The literature provides for the bifurcation of OTTI into: (i) amounts related to credit losses, which are recognized through earnings, and (ii) amounts related to all other factors that are recognized as a component of other comprehensive income. The Company elected to early adopt this guidance effective January 1, 2009 and has incorporated the guidance into preparing the Consolidated Financial Statements as of September 30, 2009.

In June 2009, the FASB issued accounting guidance on the accounting for transfers of financial assets. This guidance improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The guidance is effective for periods ending after November 15, 2009. Management is currently evaluating the potential impact of this guidance on the Company’s financial position, results of operations and cash flows.

In June 2009, the FASB issued guidance that significantly changes the criteria for determining whether the consolidation of a variable interest entity is required. This guidance also addresses the effect of changes on consolidation of variable interest entities and concerns regarding the application of certain provisions in previously issued accounting guidance, including concerns that the accounting and disclosures do not always provide timely and useful information about an entity’s involvement in a variable interest entity. This guidance is effective for interim and annual reporting periods that begin after November 15, 2009. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

On June 30, 2009, the Company adopted new accounting standards that provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities, as well as clarity and consistency in accounting for and presenting impairment losses on securities. The standards give guidance to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The standards also relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Previously, fair values for these assets and liabilities were only disclosed once a year. These disclosures are now required on a quarterly basis to provide qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The adoption of this standard had no impact on the Company’s financial statements.

-12-

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS CONTINUED

On September 30, 2009, the Company adopted a new standard that makes the Financial Accounting Standards Board’s Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries and equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. The Codification does not change or alter existing GAAP and, therefore, the adoption of this standard had no effect on the Company’s financial statements, other than to eliminate previous references to accounting pronouncements that are no longer applicable as a result of this new codification scheme.

-13-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words “believes”, “anticipates”, “contemplates”, “expects”, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the ability to control costs and expenses, and general economic conditions. Killbuck Bancshares, Inc. undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The Company conducts no significant business or operations of its own other than holding all of the outstanding stock of the Killbuck Savings Bank Company. As a result, references to the Company generally refer to the Bank unless the context indicates otherwise.

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 filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2008. 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 involve 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 the consolidated financial statements filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2008.

Goodwill and Other Intangible Assets - As discussed in Note 7 of the consolidated financial statements, filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2008; 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 filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2008.

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Financial Condition

Total assets at September 30, 2009 were $347,707,000 compared to $341,338,000 at December 31, 2008.

Cash and cash equivalents decreased by $10,652,000 or 26.4% from December 31, 2008, to September 30, 2009, with federal funds sold decreasing $2,978,000. The decrease was used to partially fund the increase in the Bank’s loan portfolio.

Investment securities available for sale increased by $7,242,000 or 14.0% from December 31, 2008, to September 30, 2009 due to an increase in suitable securities available to purchase for the portfolio. Time Deposits held at other institutions were purchased for $1.0 million due to attractive rates and the increase in FDIC insurance limits. Investments held to maturity increased $3,925,000 or 12.2% due to some attractive municipal securities available for the portfolio.

Net loans increased by $4,783,000 or 2.4% from December 31, 2008 to September 30, 2009. An increase of $4,847,000 occurred in the real estate loan category, which is attributable primarily to residential real estate lending of $7,439,000 with an additional increase in farm lending of $412,000 and a decrease of $2,573,000 in commercial real estate lending and $431,000 in construction loan activity. Management believes the residential loan activities have seen an increase in the Bank’s lending area. Commercial and other loan balances increased by $528,000 due to additional draws on existing lines of credit. The Consumer loan balances decreased by $592,000.

Total deposits at September 30, 2009 were $296,848,000 compared to $288,947,000 at December 31, 2008. Demand accounts decreased $6,664,000, while money market accounts, savings accounts and time deposits accounts increased $6,307,000, $629,000 and $7,629,000 respectively. Management attributes these changes to the changes in interest rates. A Money Market account is a short term investment that customers use while waiting until the interest rates meet their expectations for longer term time deposits. Management believes the demand accounts decreases are attributable to normal fluctuations due to customer usage.

Federal Home Loan Bank advances decreased $488,000 due to maturities and scheduled repayments, and short-term borrowings decreased $1,405,000 at September 30, 2009 from December 31, 2008.

Shareholders’ Equity increased by $648,000 or 1.5%, which was mainly due to earnings of $2,451,000 for the first nine months of 2009 decreased by a $435,000 unrealized loss on securities included in other comprehensive income, dividends paid totaling $897,000 and by the purchase of Treasury stock for $471,000. 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 the first nine months of 2009. Management monitors risk-based capital and leveraged capital ratios in order to assess compliance of the regulatory guidelines. At September 30, 2009, the total capital ratio was 19.49%; the Tier I capital ratio was 18.41%, and the leverage ratio was 12.04%, compared to regulatory capital requirements of 8.00%, 4.00% and 4.00% respectively. These ratios are well in excess of regulatory capital requirements.

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RESULTS OF OPERATIONS

Comparison of the Nine Months Ended September 30, 2009 and 2008

Net income for the nine-month period ended September 30, 2009, was $2,451,000, a decrease of $960,000 or 28.1% from the $3,411,000 reported at September 30, 2008.

Total interest income of approximately $12,055,000 for the nine-month period ended September 30, 2009, compares to $14,433,000 for the same period in 2008, a decrease of $2,378,000 or 16.5%. The decrease in total interest income is primarily attributable to a decrease in interest and fees on loans due primarily to a decrease in the average yield on the underlying balances. See “Average Balance Sheet” for the nine-month periods ended September 30, 2009 and 2008. The yield on loans decreased to 5.99% for the first nine months of 2009 compared to 7.20% for the first nine months of 2008. Average loan balances were $206,906,000 for the first nine months of 2009 compared to $201,277,000 for the first nine months of 2008. The interest on taxable investment securities of $1,664,000 for 2009 compares to $2,118,000 for 2008. The decrease in investment income is primarily attributable to a decrease in yield. The Average investment balances on taxable securities were $61,741,000 compared to $54,080,000 and the yields were 3.42% compared to 5.05% for the first nine months of 2009 and 2008 respectively. The interest on Federal Funds also decreased. It decreased due to the decrease in volume and yield. The average balance outstanding in Federal Funds and Due from Federal Reserve Bank were $19,978,000 compared to $25,108,000 for the first nine months of 2009 and 2008 respectively. The yield on the excess liquidity in Federal Funds and Due from Federal Reserve Bank decreased from 2.42% for 2008 to .24% for 2009.

Total interest expense of $3,434,000 for the nine-month period ending September 30, 2009 represents a decrease of $1,711,000 from the $5,145,000 reported for the same nine-month period in 2008. The decrease in interest expense on deposits of $1,679,000 is due mainly to a decrease in interest rates. The decreases in the average rate paid on the underlying balances of the interest bearing liabilities are due mainly to the Time deposits. The cost of Time deposits was 2.68% compared to 3.92% for this nine-month period of 2009 and 2008, respectively. The cost on interest bearing deposits was 1.8%, compared to 2.8% for the nine-month periods of 2009 and 2008 respectively. Average interest-bearing deposits were $246,216,000 for the first nine months of 2009 compared to $238,909,000 for the first nine months of 2008. See “Average Balance Sheet” for the nine-month periods ended September 30, 2009 and 2008.

Net interest income of $8,621,000 for the nine months ended September 30, 2009, compares to $9,288,000 for the same nine-month period in 2009, a decrease of $667,000 or 7.2%. The net interest margin is expected to stabilize in 2009 but remain low.

Total non-interest income for the nine-month period ended September 30, 2009, of $1,257,000 compares to $1,441,000 for the same nine-month period in 2008, a decrease of $184,000 or 12.8%. The net Non-sufficient funds fees and overdraft fees decreased $50,000 due to a decrease in Non-sufficient funds activity. Gains on sale of loans increased $81,000 primarily due to refinancings. Bank Owned Life Insurance (BOLI) income decreased $218,000 primarily due to an asset reduction resulting from a benefit payout in the first nine months of 2008.

Total non-interest expense of $6,715,000 for the nine months ended September 30, 2009, compares to $6,477,000 for the same nine-month period in 2008. This represents an increase of $238,000 or 3.7%. Salary and employee benefits decreased approximately $33,000. The bonus accrual has decreased approximately $52,000; however, this decrease was partially offset by normal increases in salaries and employee benefits. Occupancy and Equipment costs decreased approximately $30,000; approximately $28,000 is due to decreased depreciation expense and computer technology expense. Professional fees increased approximately $37,000, which included additional auditing fees for SOX 404 compliance and other regulatory requirements such as Bank Secrecy Act and Gramm-Leach-Bliley Act, increasing regulatory examination costs, and the legal expense associated with these areas. Insurance and bond expense increased approximately $278,000 or 4.88% due to FDIC assessments.

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The Federal Deposit Insurance Corporation (FDIC) increased the regular FDIC assessment rates on all insured institutions as well as levied a special 5 basis points (bps) assessment that was assessed as of June 30, 2009 and paid September 30, 2009. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2009 and 2008

Net income for the three-month period ended September 30, 2009, was $744,000, a decrease of $354,000 or 32.2% from the $1,098,000 reported at September 30, 2008.

Total interest income of approximately $3,893,000 for the three-month period ended September 30, 2009, compares to $4,618,000 for the same period in 2008, a decrease of $725,000 or 15.7%. The decrease in total interest income is primarily attributable to a decrease in the loan category. Interest and fees on loans decreased $423,000 or 12.3% for the three-month period ended September 30, 2009 compared to the same period for 2008. The decrease in interest and fees on loans is due to a decrease in the yields earned on the underlying balances. Average loan balances were $207,588,000 compared to $201,033,000 and the yield was 5.83% compared to 6.86% for this three-month period of 2009 and 2008, respectively. See “Average Balance Sheet” for the three-month periods ended September 30, 2009 and 2008. The decrease in interest on taxable investment securities of $226,000 was primarily attributable to a decrease in the yields earned on the average balances outstanding. The average balances of taxable investment securities were $60,651,000 for 2009 compared to $55,474,000 for 2008 and the yield was 3.02% compared to 4.93% for this three-month period of 2009 and 2008 respectively. See “Average Balance Sheet” for the three-month periods ended September 30, 2009 and 2008.

Total interest expense of $1,083,000 for the three-month period ending September 30, 2009, represents a decrease of $444,000 from the $1,527,000 reported for the same three-month period in 2008. The decrease in interest expense on deposits of $435,000 is due mainly to the decreases in the average rate paid on the underlying balances of the interest bearing liabilities, specifically the Time deposits. The cost of Time deposits was 2.47% compared to 3.52% for this three-month period of 2009 and 2008, respectively and the cost of interest bearing deposits was 1.7% compared to 2.50% for this three-month period of 2009 and 2008 respectively. The average time deposits were $152,295,000 for this three-month period of 2009 compared to $149,429,000 for the same three months of 2009. Average interest-bearing deposits were $249,198,000 for this three-month period of 2009 compared to $239,361,000 for the same three months of 2008. See “Average Balance Sheet” for the three-month periods ended September 30, 2009 and 2008.

Net interest income of $2,810,000 for the three months ended September 30, 2009, compares to $3,091,000 for the same three-month period in 2008, a decrease of $281,000 or 9.1%. The net interest margin is expected to stabilize in 2009 but remain low.

Total non-interest income for the three-month period ended September 30, 2009, of $414,000 compares to $393,000 for the same three-month period in 2008, an increase of $21,000 or 5.3%. Gains on sale of loans increased $15,000 primarily due to refinancings. The changes in the remaining income accounts were attributable to increases/decreases in items that are normal and recurring in nature.

Total non-interest expense of $2,281,000 for the three months ended September 30, 2009, compares to $2,186,000 for the same three-month period in 2008. This represents an increase of $95,000 or 4.3%. Salary and employee benefits decreased $8,000. The bonus accrual has decreased approximately $17,000; however, this decrease was partially offset by normal increases in salaries and employee benefits. Professional fees increased approximately $24,000, which included additional auditing fees for SOX 404 compliance and other regulatory requirements such as Bank Secrecy Act and Gramm-Leach-Bliley Act, increasing regulatory costs, and the legal expense associated with these areas. Insurance and bond expense increased approximately $83,000 or 388.0% due to FDIC assessments. The Federal Deposit Insurance Corporation (FDIC) increased the regular FDIC assessment rates on all insured institutions. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.

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Liquidity

Management monitors projected liquidity needs and determines the level desirable based in part on the Company’s commitments to make loans and management’s assessment of the Company’s ability to generate funds.

The primary sources of funds are deposits, repayment of loans, maturities of investments, funds provided from operations and advances from the FHLB of Cincinnati. While scheduled repayments of loans and maturities of investment securities are predictable sources of funds, deposit flows and loan repayments are greatly influenced by the general level of interest rates, economic conditions and competition. The Company uses its sources of funds to fund existing and future loan commitments, to fund maturing time deposits and demand deposit withdrawals, to invest in other interest-earning assets, to maintain liquidity, and to meet operating expenses.

Cash and amounts due from depository institutions and federal funds sold totaled $29,665,000 at September 30, 2009. These assets provide the primary source of liquidity for the Company. In addition, management has designated a portion of the investment portfolio, $58,792,000 as available for sale and has an available unused line of credit of $42,078,000 with the Federal Home Loan Bank of Cincinnati to provide additional sources of liquidity at September 30, 2009. As of September 30, 2009, the Company had commitments to fund loans of approximately $2,808,000 and unused lines of credit totaling $40,176,000.

Cash was provided during the nine month period ended September 30, 2009, mainly from operating activities of $2.8 million, and the net increase in deposits of $7.9 million, the maturities and repayments of investment securities of $28.3 million. Cash was used during the nine month period ended September 30, 2009, mainly to fund a net increase in loans of $4.8 million, for the purchase of investment securities of $41.5 million, and to reduce $1.9 million in Federal Home Loan Bank advances and short-term borrowings. In addition, $.5 million was used to purchase Treasury Stock, and $.9 million was used to pay dividends to shareholders. Cash and cash equivalents totaled $29.7 million at September 30, 2009, a decrease of $10.6 million from $40.3 million at December 31, 2008.

Management is not aware of any conditions, including any regulatory recommendations or requirements, which would adversely affect its liquidity or ability to meet its funding needs in the normal course of business.

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Risk Elements

The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans and repossessed assets at September 30, 2009, and December 31, 2008. The Company ceased accruing interest on residential mortgages secured by real estate and consumer loans when principal or interest payments are delinquent 90 days or more. Commercial loans, that are 90 days or more past due, are reviewed by the Executive Vice President and the loan officer to determine whether they will be classified as nonperforming. These officers review various factors, which include, but are not limited to, the timing of the maturity of the loan in relation to the ability to collect, whether the loan is deemed to be well secured, whether the loan is in the process of collection, and the favorable results of the analysis of customer financial data. A nonperforming loan will only be re-classified as a performing loan when stringent criteria have been met. At the time the accrual of interest is discontinued, future income is recognized only when cash is received or the loan has been returned to performing loan status. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as of result of the deterioration of the borrower.


	September 30, 2009			December 31, 2008
	(dollars in thousands)
Loans on nonaccrual basis	$	11		$	73
Loans past due 90 days or more		—			—
Renegotiated loans		—			—

Total nonperforming loans	$	11		$	73

Other real estate		—			—
Repossessed assets		—			—

Total nonperforming assets	$	11		$	73


Nonperforming loans as a percent of total loans		.01	%		.04	%

Nonperforming loans as a percent of total assets		.00	%		.02	%

Nonperforming assets as a percent of total assets		.00	%		.02	%

Management monitors impaired loans on a continual basis. As of September 2009, impaired loans had no material effect on the Company’s financial position or results from operations.

The allowance for loan losses at September 30, 2009, totaled $2,464,000 or 1.19% of total loans as compared to $2,525,000 or 1.24% at December 31, 2008. Provisions for loan losses were $2,000 for the nine months ended September 30, 2009 and $0 for the three months ended September 30, 2009. The provision was for the Overdraft Privilege program.

The level of funding for the provision is a reflection of the overall loan portfolio. Nonperforming loans consist of approximately $11,000 in commercial loan balances. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in management’s opinion.

Management performs a quarterly evaluation of the allowance for loan losses. The evaluation incorporates internal loan review and actual historical losses, as well as any negative economic trends in the local market. The evaluation is presented to and approved by the Board of Directors. Although the Company maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent risk of loss in its portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods.

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AVERAGE BALANCE SHEET

Average Balance Sheet for the Nine-Month Period Ended September 30

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented.


	Period Ended
	2009							2008
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
Assets
Interest Earnings Assets:
Loans (1)(2)(3)	$	206,905,771			9,295,475	5.99	%	$	201,277,236		$	10,862,950	7.20	%
Securities-taxable (4)		61,740,605			1,585,587	3.42	%		54,079,797			2,048,880	5.05	%
Securities-nontaxable (4)		33,751,864			1,059,279	4.18	%		30,811,689			996,637	4.31	%
Securities-Equity (4,5)		1,734,560			78,310	6.02	%		1,697,923			69,349	5.45	%
Federal funds sold		6,556,359			7,708	0.16	%		25,108,478			454,919	2.42	%
Due from Federal Reserve Bank		13,421,474			28,816	0.29	%		—			—	—	%

Total interest earnings assets		324,110,633			12,055,175	4.96	%		312,975,123			14,432,735	6.15	%


Noninterest earning assets:
Cash and due from other institutions		10,199,930							11,517,628
Premises and equipment, net		6,192,475							6,519,352
Accrued interest		1,278,820							1,381,096
Other assets		8,190,378							7,711,671
Less allowance for loan losses		(2,518,939	)						(2,495,053	)

Total noninterest earnings assets		23,342,664							24,634,694

Total Assets	$	347,453,297						$	337,609,817


Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing demand		26,059,089			29,723	0.15	%		26,721,053			84,687	0.42	%
Money market accounts		28,670,605			183,558	0.85	%		21,114,047			261,374	1.65	%
Savings deposits		40,928,340			119,871	0.39	%		38,560,113			205,903	0.71	%
Time deposits		150,557,793			3,021,483	2.68	%		152,513,352			4,481,110	3.92	%
Short term borrowings		5,353,424			9,198	0.23	%		5,328,085			14,410	0.36	%
Federal Home Loan Advances		1,587,346			70,630	5.93	%		2,250,118			97,533	5.78	%

Total interest bearing liabilities		253,156,597			3,434,463	1.81	%		246,486,768			5,145,017	2.78	%


Noninterest bearing liabilities:
Demand deposits		50,193,496							48,267,996
Accrued expenses and other liabilities		2,864,614							3,316,456

Total noninterest bearing liabilities		53,058,110							51,584,452

Shareholders’ equity		41,238,590							39,538,597

Total Liabilities and Shareholders’ Equity	$	347,453,297						$	337,609,817


Net interest income				$	8,620,712						$	9,287,718


Interest rate spread (6)						3.15	%						3.37	%


Net yield on interest earning assets (7)						3.55	%						3.96	%

(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 $275,000 and $275,000 in 2009 and 2008, 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 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.

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AVERAGE BALANCE SHEET

Average Balance Sheet for the Three-Month Period Ended September 30


	Period Ended
	2009							2008
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
Assets
Interest Earnings Assets:
Loans (1)(2)(3)	$	207,587,818			3,023,714	5.83	%	$	201,033,218		$	3,447,195	6.86	%
Securities-taxable (4)		60,651,342			457,906	3.02	%		55,474,344			684,079	4.93	%
Securities-nontaxable (4)		34,816,800			363,707	4.18	%		31,967,024			342,897	4.29	%
Securities-Equity (4,5)		1,734,560			35,069	8.09	%		1,714,703			20,703	4.83	%
Federal funds sold		6,789,321			2,065	0.12	%		24,724,312			122,908	1.99	%
Due from Federal Reserve Bank		16,229,068			10,378	0.26	%		—			—	—	%

Total interest earnings assets		327,808,909			3,892,839	4.75	%		314,913,601			4,617,782	5.87	%

Noninterest earning assets:
Cash and due from other institutions		9,675,153						$	12,041,897
Premises and equipment, net		6,111,544							6,465,752
Accrued interest		1,178,927							1,265,083
Other assets		8,341,036							8,015,000
Less allowance for loan losses		(2,500,868	)						(2,485,320	)

Total noninterest earnings assets		22,805,793							25,302,412

Total Assets	$	350,614,701						$	340,216,013


Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing demand		25,236,692			9,395	0.15	%	$	27,419,713		$	27,969	0.41	%
Money market accounts		30,726,250			67,435	0.88	%		23,066,191			87,712	1.52	%
Savings deposits		40,940,158			40,204	0.39	%		39,446,537			63,245	0.64	%
Time deposits		152,294,778			942,217	2.47	%		149,428,729			1,314,905	3.52	%
Short term borrowings		4,921,774			2,850	0.23	%		5,387,011			3,120	0.23	%
Federal Home Loan Advances		1,424,618			21,283	5.98	%		2,080,994			30,119	5.79	%

Total interest bearing liabilities		255,544,270			1,083,384	1.70	%		246,829,175			1,527,070	2.47	%


Noninterest bearing liabilities:
Demand deposits		50,828,045							50,307,203
Accrued expenses and other liabilities		3,736,863							4,391,342

Total noninterest bearing liabilities		54,564,908							54,698,545

Shareholders’ equity		40,505,523							38,688,293

Total Liabilities and Shareholders’ Equity	$	350,614,701						$	340,216,013


Net interest income				$	2,809,455						$	3,090,712


Interest rate spread (6)						3.05	%						3.40	%


Net yield on interest earning assets (7)						3.43	%						3.93	%

(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 $102,000 and $89,000 in 2009 and 2008, 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 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.

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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).


	Nine-Month Period Ended September 2009 Compared to 2008 Increase (Decrease) Due To
	Volume			Rate			Net
Interest income
Loans	$	405		$	(1,973	)	$	(1,568	)
Securities-taxable		387			(850	)		(463	)
Securities-nontaxable		127			(65	)		62
Securities-equities		2			7			9
Federal funds sold		(124	)		(294	)		(418	)
Due from Federal Reserve		—			—			—

Total interest earning Assets	$	797		$	(3,175	)	$	(2,378	)


Interest expense
Interest bearing demand		(3	)		(52	)		(55	)
Money market accounts		125			(203	)		(78	)
Savings deposits		17			(103	)		(86	)
Time deposits		(77	)		(1,383	)		(1,460	)
Short-term borrowing		0			(5	)		(5	)
Federal Home Loan Bank Advances		(38	)		11			(27	)

Total interest bearing Liabilities		24			(1,735	)		(1,711	)


Net change in net interest income	$	773		$	(1,440	)	$	(667	)

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Rate/Volume Analysis


	Three-Month Period Ended September 2009 Compared to 2008 Increase (Decrease) Due To
	Volume			Rate			Net
Interest income
Loans	$	450		$	(873	)	$	(423	)
Securities-taxable		255			(481	)		(226	)
Securities-nontaxable		122			(101	)		21
Securities-equities		1			13			14
Federal funds sold		(34	)		(77	)		(111	)
Due from Federal Reserve Bank		—			—			—

Total interest earning Assets	$	794		$	(1,519	)	$	(725	)


Interest expense
Interest bearing demand		(9	)		(10	)		(19	)
Money market accounts		116			(136	)		(20	)
Savings deposits		10			(33	)		(23	)
Time deposits		101			(474	)		(373	)
Short-term borrowing		(1	)		1			—
Federal Home Loan Bank Advances		(38	)		29			(9	)

Total interest bearing Liabilities		179			(623	)		(444	)


Net change in net interest income	$	615		$	(896	)	$	(281	)

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Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable to Smaller Reporting Companies.

Item 4 – 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-15. 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 September 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – OTHER INFORMATION

Item 1 - Legal Proceedings

None

Item 1A - Risk Factors

Not Applicable to Smaller Reporting Companies.

Item 2 - Unregistered sales of equity securities and use of proceeds

The Company did not engage in any unregistered sales of its securities during the quarter ended September 30, 2009

ISSUER PURCHASES OF EQUITY SECURITIES


Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

July 1 – 30, 2009	805	$	104.30	N/A	N/A

August 1 – 31, 2009	—	$	—	N/A	N/A

September 1 – 30, 2009	673	$	105.20	N/A	N/A


Total (1)	1,478	$	104.71	N/A	N/A

(1)	1,478 shares of common stock were purchased by Killbuck Bancshares in open-market transactions.

Item 3 - Default upon senior securities

None

Item 4 - Results of votes of security holders

None

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Item 5 - Other Information

None

Item 6 - Exhibits

The following exhibits are included in this report or incorporated herein by reference:


3.1(i)		Articles of Incorporation of Killbuck Bancshares, Inc.*

3.1(ii)		Amendment to the Articles of Incorporation of Killbuck Bancshares, Inc. increasing authorized shares.**

3.2		Code of Regulations of Killbuck Bancshares, Inc.*

31.1		Rule 13a-14(a) Certification

31.2		Rule 13a-14(a) Certification

32.1		Section 1350 Certifications

32.2		Section 1350 Certifications

99.1		Report of Independent Registered Public Accounting Firm

*	Incorporated by reference to an identically numbered exhibit to the Form 10 (file No. 0-24147) filed with SEC on April 30, 1998 and subsequently amended on July 8, 1998 and July 31, 1998.

**	Incorporated by reference to Registrant’s report on Form 10-Q for the quarter ended March 31, 2004, filed with the Commission on May 13, 2004.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Killbuck Bancshares, Inc.

Date: November 13, 2009	By:	/ S / L UTHER E. P ROPER
		Luther E. Proper
		President and Chief Executive Officer

Date: November 13, 2009	By:	/ S / D IANE K NOWLES
		Diane Knowles
		Chief Financial Officer