10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 [FEE REQUIRED]

For the Fiscal Year Ended December 31, 2007

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from              to             .

Commission File No. 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 North Main Street

Killbuck, Ohio 44637

(Address of principal executive offices)

Registrant’s telephone number, including area code: (330) 276-2771

Securities to be registered pursuant to Section 12(b) of the Act: None

Securities to be registered pursuant to Section 12(g) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock No Par Value	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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 than the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨ Non-accelerated filer  ¨    Smaller reporting Company  x

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

The aggregate market value of the voting stock held by nonaffiliates of the registrant, calculated by reference to the stock valuation done on Killbuck Bancshares, Inc. common stock as of June 30, 2007 was $70,837,995 (Registrant has assumed that all of its executive officers and directors are affiliates. Such assumption shall not be deemed to be conclusive for any other purpose):

There were 629,582 shares of no par value common stock outstanding as of December 31, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Shareholders for the Year ended December 31, 2007. (Part II, III and IV)

2. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 2008 for the Year ended December 31, 2007. (Part III)

FORM 10-K INDEX

PART I
Item 1.	Business
Item 1A	Risk Factors
Item 1B	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
PART III
Item 10.	Directors and Executive Officers of Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions
Item 14.	Principal Accountant Fees and Services
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Signatures

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 38,000.

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 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.

The Company, through its subsidiary, The Killbuck Savings Bank Company, conducts the business of a commercial banking organization. At December 31, 2007, the Company and its subsidiary had consolidated total assets of $336,337,048 and consolidated total equity of $41,117,641. The capital of the Company consists of 1,000,000 authorized shares of capital stock, no par value of which 629,582 shares were outstanding at December 31, 2007 to 1,016 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, 2007, the Bank had 104 full-time and 23 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, 2007 (the most recent date for which information is available), the Bank had the largest market share with $219.1 million in total deposits as of such date, representing a market share of 41.5%. The institution with the second largest market share had deposits of $196.0 million as of such date, representing a market share of 37.1%. The Bank had total assets as of December 31, 2007, of $336.3 million compared to the other institution’s total assets of $350 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.

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, 2007, 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.

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.

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.

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.

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.

Reports to Security Holders

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy solicitation materials, as applicable, under Commission Regulation 14A. The public may read and copy any materials the Company files with the Commission at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov. The Company’s Internet website is http://www.killbuckbank.com.

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 affect 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 collectability 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, 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.

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.

Goodwill

When the Bank acquired the Danville Office, a portion of the purchase price was allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the net identifiable assets acquired determines the amount of the purchase price, which was allocated to goodwill and other intangible assets. 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

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 Berlin Office relocated in November 2007, and an ATM remains at the old Berlin Branch location. The Bank’s total investment in office property and equipment was $11.3 million with a net book value $6.5 million at December 31, 2007. The offices are at the following locations.

Main Office: (1)	ATM Location Berlin (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)	Berlin Branch (1)
701 S. Market Street	4790 Township Road
Danville, Ohio 43014	Millersburg, Ohio 44654

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.

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, Related Stockholder Matters and Issuer Purchase of Equity Securities

As of December 31, 2007, the Company had 1,016 shareholders of record, as calculated by excluding individual participants in securities positions listings, who collectively held 629,582 of the 1,000,000 authorized shares of the Company’s no par value stock.

Our common shares are currently quoted by a number of quotation services, including the Over the Counter Bulletin Board (the “OTCBB”) and the Pink Sheets Electronic Quotation Service (the “Pink Sheets”), as well as by Community Banc Investments, New Concord, Ohio (“CBI”), each of which handles a limited amount of the Corporation’s stock transactions. The OTCBB and the Pink Sheets are both quotation services for “over-the-counter securities,” which are generally considered to be any equity securities not otherwise listed on a national exchange, such as NASDAQ, NYSE or Amex. CBI is a licensed intrastate securities dealer that specializes in marketing the stock of independent banks in Ohio. The Company’s common shares are quoted on the OTCBB and the Pink Sheets under the trading symbol “KLIB.”

The common stock of the Company trades infrequently. Parties interested in buying or selling the Company’s stock are generally referred to Community Banc Investments, New Concord, Ohio (“CBI”). The quarterly high and low price information in the table below was obtained from CBI and the OTCBB.

Quarter Ended		High		Low		Cash Dividends Paid
2007	March 31	$	113.47	$	111.17		N/A
	June 30		114.56		113.13	$	1.35
	September 30		117.76		115.43		N/A
	December 31		119.14		116.49	$	2.40
2006	March 31	$	105.42	$	102.50		N/A
	June 30		106.66		103.00	$	1.20
	September 30		110.85		103.00		N/A
	December 31		111.76		109.10	$	2.30

Management does not have knowledge of the prices paid in all transactions and has not verified the accuracy of those prices that have been reported. Because of the lack of an established market for the Company’s stock, these prices may not reflect the prices at which the stock would trade in a more active market.

Cash dividends are paid on a semi-annual basis. 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.

Included in the December 31, 2007 dividend of $2.40 per share was a special one-time dividend of $1.00 per share. This special dividend will not be repeated in the foreseeable future. Because of sustained profits in 2007 and a strong capital position, the Board of Directors declared this special one-time dividend to the shareholders.

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, 2007, 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, 2007, 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.

Performance Graph – Five-Year Shareholder Return Comparison

The following chart compares the five-year cumulative return on $100 invested on December 31, 2002 in each of the following: (1) Common Stock of Killbuck Bancshares, Inc.; (2) the Dow Jones US Index; and (3) the Dow Jones US Banks Index.

	12/02	12/03	12/04	12/05	12/06	12/07
Killbuck Bancshares, Inc.	100.00	100.92	107.65	118.78	134.05	143.94
Dow Jones US	100.00	130.75	146.45	155.72	179.96	190.77
Dow Jones US Banks	100.00	132.94	152.03	155.32	182.84	136.79

Unregistered Sales of Equity Securities and Use of Proceeds

None

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
October 1 – 31, 2007	1,380	$	117.76	N/A	N/A
November 1 – 30, 2007	60	$	119.14	N/A	N/A
December 1 – 31, 2007	621	$	116.49	N/A	N/A
Total (1)	2,061	$	117.42	N/A	N/A

(1) 2,061 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, 2007, included in this report as part of Exhibit 13, is incorporated herein by reference.

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, 2007, 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):

	2007		2006		2005		2004		2003
Securities available for sale:
Obligations of U.S. Government Agencies and Corporations	$	53,116	$	34,753	$	14,307	$	9,754	$	17,582
Mutual Funds		1,000		—		—		—		—
Total available for sale		54,116		34,753		14,307		9,754		17,582
Securities held to maturity:
Obligations of States and Political subdivisions		29,552		29,993		30,771		35,564		39,900
Corporate securities		—		—		—		451		729
Total held to maturity		29,552		29,993		30,771		36,015		40,629
Total	$	83,668	$	64,746	$	45,078	$	45,769	$	58,211

MATURITY SCHEDULE OF INVESTMENTS

The following table presents the investment portfolio, the weighted average yield and maturities at December 31, 2007 (dollars in thousands):

	Within three months				After three months but Within one year				After one year but Within five years				After five but Within ten years				After 10 years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Total
Available for Sale (1)
MBS	$	—	0.00	%	$	—	0.00	%	$	740	4.53	%	$	506	4.36	%	$	282	5.31	%	$	1,528
Obligations of U.S. Government Agencies and Corporations	$	1,002	4.76	%	$	3,005	4.72	%	$	34,468	5.22	%	$	13,113	5.07	%	$	—	0.00	%	$	51,588
Mutual Funds	$	—	0.00	%	$	1,000	6.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	1,000
Total	$	1,002	4.76	%	$	4,005	5.04	%	$	35,208	5.21	%	$	13,619	5.04	%	$	282	5.31	%	$	54,116
Held to Maturity
Obligations of States and Political subdivisions (2)	$	—	0.00	%	$	2,469	4.37	%	$	15,190	4.41	%	$	11,692	4.07	%	$	201	3.95	%	$	29,552
Total	$	—	0.00	%	$	2,469	4.37	%	$	15,190	4.41	%	$	11,692	4.07	%	$	201	3.95	%	$	29,552

(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, 2007.

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,
	2007				2006				2005				2004				2003
	Amount		% of Total Loans		Amount		% of Total Loans		Amount		% of Total Loans		Amount		% of Total Loans		Amount		% of Total Loans
Real estate - residential	$	72,858	36.6	%	$	77,025	39.6	%	$	90,976	43.5	%	$	97,811	45.0	%	$	88,649	44.0	%
Real estate - farm		9,967	5.0			13,368	6.9			14,550	7.0			12,309	5.6			12,298	6.1
Real estate - commercial		59,817	30.0			50,147	25.8			47,312	22.7			47,226	21.8			42,090	20.8
Real estate - construction		7,778	3.9			10,917	5.6			9,447	4.5			11,000	5.1			10,978	5.4
Commercial and other		41,678	20.9			36,225	18.6			38,399	18.4			40,752	18.8			38,269	19.0
Consumer and credit card		7,201	3.6			6,941	3.5			8,217	3.9			8,075	3.7			9,413	4.7
	$	199,299	100.0	%	$	194,623	100.0	%	$	208,901	100.0	%	$	217,173	100.0	%	$	201,697	100.0	%

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, 2007 (dollars in thousands):

	Within 1 Year		After 1 Year Within 5 Years		After 5 Years		Total
Real estate – commercial	$	24,077	$	28,952	$	6,788	$	59,817
Real estate – construction		5,236		1,903		639		7,778
Commercial and other		28,156		12,264		1,258		41,678
	$	57,469	$	43,119	$	8,685	$	109,273
Fixed interest rates	$	8,112	$	16,145	$	4,311	$	28,568
Variable interest rates		49,357		26,974		4,374		80,705
	$	57,469	$	43,119	$	8,685	$	109,273

RISK ELEMENTS

Loans are subject to ongoing periodic monitoring by management and the board of directors. The Company ceases 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 a result of the deterioration of the borrower. At December 31, 2007, the non-accrual loans are comprised of seven loans. The four commercial loans total approximately $482,000 secured by equipment and real estate. Three residential loans of approximately $357,000 are secured by real estate. 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).

	December 31,
	2007			2006			2005			2004			2003
Loans on nonaccrual basis	$	839		$	471		$	632		$	1,095		$	220
Loans past due 90 days or more		—			—			—			—			1
Renegotiated loans		—			—			—			—			—
Total nonperforming loans		839			471			632			1,095			221
Other real estate		—			80			700			—			—
Repossessed assets		—			—			—			—			—
Total nonperforming assets	$	839		$	551		$	1,332		$	1,095		$	221
Nonperforming loans as a percent of total loans		.42	%		.24	%		.30	%		.50	%		.11	%
Nonperforming loans as a percent of total assets		.25	%		.15	%		.21	%		.37	%		.08	%
Nonperforming assets as a percent of total assets		.25	%		.18	%		.45	%		.37	%		.08	%

The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was approximately $35,000 and the amount of interest income that was recognized was $0 for the year ended December 31, 2007.

There are not any loans as of December 31, 2007, 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 of which management is aware. 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):

	Year Ended December 31,
	2007			2006			2005			2004			2003
Allowance for loan losses at beginning of year	$	2,394		$	2,313		$	2,646		$	2,702		$	2,326
Provision charged to expense		127			215			377			225			390
Charge-offs:
Real estate - residential		6			212			4			17			6
Real estate - farm		—			—			—			—			—
Real estate - commercial		71			92			500			—			—
Real estate - construction		—			—			—			—			—
Commercial and other		16			181			228			311			16
Consumer and credit card		39			9			52			28			99
Total charge-offs		132			494			784			356			121
Recoveries:
Real estate - residential		57			32			—			1			—
Real estate - farm		—			—			—			—			—
Real estate - commercial		27			308			—			—			—
Real estate - construction		—			—			—			—			—
Commercial and other		16			—			25			13			19
Consumer and credit card		21			20			49			61			88
Total recoveries		121			360			74			75			107
Net charge-offs		11			134			710			281			14
Business acquisition		—			—			—			—			—
Allowance for loan losses at end of period	$	2,510		$	2,394		$	2,313		$	2,646		$	2,702
Total loans outstanding	$	199,298		$	194,623		$	208,901		$	217,173		$	201,697
Average loans outstanding	$	202,692		$	202,525		$	215,486		$	213,463		$	187,554
Allowance for loan losses as a percent of total loans		1.26	%		1.23	%		1.11	%		1.22	%		1.34	%
Net charge-offs as a percent of average loans		.01	%		.07	%		.33	%		.13	%		.01	%

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, 2007, 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):

	2007				2006				2005				2004				2003
	Allowance		% of Loans to Total Loans		Allowance		% of Loans to Total Loans		Allowance		% of Loans to Total Loans		Allowance		% of Loans to Total Loans		Allowance		% of Loans to Total Loans
Real estate – residential	$	621	36.6	%	$	540	39.6	%	$	323	43.5	%	$	478	45.0	%	$	432	44.0	%
Real estate – farm		21	5.0			60	6.9			—	7.0			58	5.7			124	6.1
Real estate – commercial		566	30.0			451	25.8			257	22.7			755	21.7			704	20.8
Real estate – construction		—	3.9			—	5.6			—	4.5			—	5.1			—	5.4
Commercial and other loans		1,191	20.9			1,181	18.6			1,598	18.4			1,034	18.8			1,038	19.0
Consumer and credit loans		111	3.6			162	3.5			135	3.9			321	3.7			404	4.7
	$	2,510	100.0	%	$	2,394	100.0	%	$	2,313	100.0	%	$	2,646	100.00	%	$	2,702	100.0	%

CONTRACTUAL OBLIGATIONS

The following table presents, as of December 31, 2007, 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, 2007, attached hereto as Exhibit 13 to this Form 10K.

(In thousands)	Note Reference	One Year or Less	One to Three Years	Three to Five Years	Over Five Years	Total
Borrowed funds	9,10	6,468	1,173	399	242	8,282
Certificates of Deposit	8	125,034	23,960	4,010	3	153,007
Operating Leases	13	19	39	40	254	352
Deposits without a stated maturity		132,444	—	—	—	132,444

The Company entered into an operating lease to lease 1,600 square feet with a drive-thru facility within the German Village Store in Berlin, Ohio, which began in April 2004 and expires in the year 2024 with an additional ten-year option. The German Village grocery store closed in the fourth quarter of 2006. The branch and the other lessees remained open. A grocery store was opened in 2007 along with other new vendors.

COMMITMENTS

The following table details the amounts and expected maturities of significant commitments as of December 31, 2007. Further discussion of these commitments is included in Note 15 to the financial statements as of December 31, 2007, attached hereto as Exhibit 13 to this Form 10K.

(In thousands)	One Year or Less	One to Three Years	Three to Five Years	Over Five Years	Total
Commitments to extend credit
Commercial	23,325	413	—	—	23,738
Residential real estate	1,823	158	500	—	2,481
Revolving home equity	—	—	—	12,915	12,915
and credit card lines	2,936	—	—	—	2,936
Standby letters of credit	785	—	—	—	785

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 variable rate loans and as of December 31, 2007, they comprised approximately 72.9% 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. 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.

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 using 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 7.0% and a 2% immediate decrease in interest rates would decrease earnings by 6.9%.

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.

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.

The following table presents the Bank’s interest rate sensitivity gap position as of December 31, 2007 (dollars in thousands):

INTEREST RATE SENSITIVITY GAPS

(IN THOUSANDS)

	2008			2009			2010			2011			2012			Thereafter			Total
Interest-earnings assets:
Loans:
Fixed	$	17,855		$	8,665		$	5,618		$	4,573		$	3,486		$	13,806		$	54,003
Variable		104,986			11,023			10,464			9,295			5,876			3,652			145,296
Securities:
Fixed		7,476			8,402			11,829			14,512			15,655			25,794			83,668
Other interest-earning assets		29,548			—			—			—			—			—			29,548
Total interest-earning assets		159,865			28,090			27,911			28,380			25,017			43,252			312,515
Interest-bearing liabilities:
Demand and savings deposits		25,432			25,432			25,432			25,430			—			—			101,726
Time deposits:
Fixed		125,034			20,569			2,192			2,533			2,676			3			153,007
Short-term borrowings		5,745			—			—			—			—			—			5,745
FHLB advances		723			642			530			224			175			243			2,537
Total interest-bearing liabilities		156,934			46,643			28,154			28,187			2,851			246			263,015
Interest rate sensitivity gap		2,931			(18,553	)		(243	)		193			22,166			43,006
Cumulative rate sensitivity gap	$	2,931		$	(15,622	)	$	(15,865	)	$	(15,672	)	$	6,494		$	49,500
Cumulative interest rate sensitivity gap as a percent of interest earning assets		0.94	%		-5.00	%		-5.08	%		-5.01	%		2.08	%		15.84	%

Item 8 Financial Statements and Supplementary Data

The report of independent auditors and consolidated financial statements included in the Annual Report to shareholders of Killbuck Bancshares, Inc. for the year ended December 31, 2007, 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-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.

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.

Management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability to record, process, summarize and report reliable financial data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the Company’s internal control over financial reporting is effective, management is required to evaluate, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and did so most recently for its financial reporting as of December 31, 2007. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting was based on criteria for effective internal control over financial reporting described in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded that the internal control over financial reporting was effective as of December 31, 2007. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent auditor and approves decisions regarding the appointment or removal of the Company’s Internal Auditor. It meets periodically with management, the independent auditors and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the

Company’s financial reports. The independent auditors and the internal auditor have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee.

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, 2007. 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	58	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	50	Vice president and treasurer of Company since 1992; Executive vice president of bank since 1991.
Diane S. Knowles	45	Vice president and secretary of Company since July, 2000; Senior vice president and Chief Financial Officer of Bank since June, 2000.

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. 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 and Related Stockholder Matters

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, 2007, 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.

PART IV

Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K

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, 2007, are incorporated by reference in item 8:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheet at December 31, 2007 and 2006

Consolidated Statement of Income for the Years ended December 31, 2007, 2006 and 2005

Consolidated Statement of Changes in Shareholders’ Equity for the Years ended December 31, 2007, 2006 and 2005

Consolidated Statement of Cash Flows for the Years ended December 31, 2007, 2006 and 2005

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.

Exhibits

The following exhibits are filed herewith and/or are incorporated herein by reference.

Exhibit Number	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 23, 2007 between Killbuck Savings Bank Company and Luther E. Proper. **
10.2	Employment Agreement dated April 23, 2007 between Killbuck Savings Bank Company and Craig A. Lawhead. **
10.3	Employment Agreement dated April 23, 2007 between Killbuck Savings Bank Company and Diane S. Knowles. **
12	Statement regarding computation of ratios.
13	Portions of the 2008 Annual Report to Shareholders
21	Subsidiary of the Holding Company.*
31.1	Rule 13a-14(a) Certification
31.2	Rule 13a-14(a) 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 the SEC on April 30, 1998 and subsequently amended on July 8, 1998 and July 31, 1998.

** Incorporated by reference to an identically numbered exhibit to the Form 8-K filed with the SEC on April 27, 2007.

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	President, Chief Executive Officer and Director	March 26, 2008
Luther E. Proper
/s/ John W. Baker	Director	March 26, 2008
John W. Baker
/s/ Ted Bratton	Director	March 26, 2008
Ted Bratton
/s/ Gail E. Patterson	Director	March 26, 2008
Gail E. Patterson
/s/ Allan R. Mast	Director	March 26, 2008
Allan R. Mast
/s/ Max A. Miller	Director	March 26, 2008
Max A. Miller
/s/ Dean J. Mullet	Director	March 26, 2008
Dean J. Mullet
/s/ Kenneth E. Taylor	Director	March 26, 2008
Kenneth E. Taylor
/s/ Michael S. Yoder	Director	March 26, 2008
Michael S. Yoder
/s/ Diane S. Knowles	Chief Financial and Chief Accounting Officer	March 26, 2008
Diane S. Knowles

EX-12

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, 2007, 2006, 2005, 2004 and 2003, 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,
	2007		2006		2005		2004		2003
Net income	$	4,904,699	$	5,223,393	$	4,210,868	$	3,419,408	$	3,208,820
Weighted Average Shares Outstanding		634,911		642,141		654,289		662,415		676,380
Per Share Amount	$	7.73	$	8.14	$	6.44	$	5.16	$	4.75

Cash dividends/Weighted Average

Shares Outstanding =

Cash dividends declared

Per share

	December 31,
	2007		2006		2005		2004		2003
Cash dividends	$	2,371,463	$	2,240,163	$	1,437,738	$	1,291,144	$	1,240,872
Weighted Average shares outstanding		634,911		642,141		654,289		662,415		676,380
Per Share Amount	$	3.75	$	3.50	$	2.20	$	1.95	$	1.85

Shareholders’ Equity/Shares

Outstanding at period end =

Book Value per share

	December 31,
	2007		2006		2005		2004		2003
Shareholders’ Equity	$	41,117,641	$	39,133,797	$	37,049,303	$	35,358,934	$	34,061,554
Shares outstanding		629,582		638,642		647,760		657,486		664,788
Per Share Amount	$	65.31	$	61.28	$	57.20	$	53.78	$	51.24

Net Income/Average

Assets = Return on

Average Assets

	(In Thousands)
	December 31,
	2007			2006			2005			2004			2003
Net Income	$	4,905		$	5,223		$	4,211		$	3,419		$	3,209
Average Assets	$	324,023		$	299,641		$	291,818		$	288,574		$	284,725
Return on Average Assets		1.51	%		1.74	%		1.44	%		1.18	%		1.13	%

Net Income/Average

Shareholders’ equity =

Return on Average Equity

	(In Thousands)
	December 31,
	2007			2006			2005			2004			2003
Net Income	$	4,905		$	5,223		$	4,211		$	3,419		$	3,209
Average Shareholders’ Equity	$	38,072		$	35,838		$	34,410		$	33,333		$	32,838
Return on Average Equity		12.88	%		14.57	%		12.24	%		10.26	%		9.77	%

Cash dividends per share/

Net income per share =

Dividends Payout Ratio

	December 31,
	2007			2006			2005			2004			2003
Cash dividends per share	$	3.75		$	3.50		$	2.20		$	1.95		$	1.85
Net income per share	$	7.73		$	8.14		$	6.44		$	5.16		$	4.75
Dividend Payout Ratio		48.51	%		43.00	%		34.16	%		37.79	%		38.95	%

Average Equity/Average

Assets = Average Equity

To Average Assets

	(In thousands)
	December 31,
	2007			2006			2005			2004			2003
Average Shareholders’ Equity	$	38,072		$	35,838		$	34,410		$	33,333		$	32,838
Average Assets	$	324,023		$	299,641		$	291,818		$	288,574		$	284,725
Average Equity to Average Assets		11.75	%		11.96	%		11.79	%		11.55	%		11.53	%

Loans/Total deposits =

Loan to Deposit Ratio

	(In thousands)
	December 31,
	2007			2006			2005			2004			2003
Total loans	$	199,299		$	194,623		$	208,901		$	217,173		$	201,697
Total deposits	$	285,451		$	264,301		$	250,349		$	247,349		$	241,724
Loan to Deposit Ratio		69.82	%		73.64	%		83.44	%		87.8	%		83.44	%

Allowance for Loan Loss/

Total Loan = Allowance

To Total Loan Ratio

	(In thousands)
	December 31,
	2007			2006			2005			2004			2003
Allowance	$	2,510		$	2,394		$	2,313		$	2,646		$	2,702
Total loans	$	199,299		$	194,623		$	208,901		$	217,173		$	201,697
Allowance to total Loan ratio		1.26	%		1.23	%		1.11	%		1.22	%		1.34	%

EX-13

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

Our common shares are currently quoted by a number of quotation services, including the Over the Counter Bulletin Board (the “OTCBB”) and the Pink Sheets Electronic Quotation Service (the “Pink Sheets”), as well as by Community Banc Investments, New Concord, Ohio (“CBI”), each of which handles a limited amount of the Corporation’s stock transactions. The OTCBB and the Pink Sheets are both quotation services for “over-the-counter securities,” which are generally considered to be any equity securities not otherwise listed on a national exchange, such as NASDAQ, NYSE or Amex. CBI is a licensed intrastate securities dealer that specializes in marketing the stock of independent banks in Ohio. The Company’s common shares are quoted on the OTCBB and the Pink Sheets under the trading symbol “KLIB.”

The common stock of the Company trades infrequently. Parties interested in buying or selling the Company’s stock are generally referred to Community Banc Investments, New Concord, Ohio (“CBI”). The quarterly high and low price information in the table below was obtained from CBI and the OTCBB.

Quarter Ended		High		Low		Cash Dividends Paid
2007	March 31	$	113.47	$	111.17		N/A
	June 30		114.56		113.13	$	1.35
	September 30		117.76		115.43		N/A
	December 31		119.14		116.49	$	2.40
2006	March 31	$	105.42	$	102.50		N/A
	June 30		106.66		103.00	$	1.20
	September 30		110.85		103.00		N/A
	December 31		111.76		109.10	$	2.30

At December 31, 2007, the Company had approximately 1,016 shareholders of record.

Management does not have knowledge of the prices paid in all transactions and has not verified the accuracy of those prices that have been reported. Because of the lack of an established market for the Company’s stock, these prices may not reflect the prices at which the stock would trade in a more active market.

Cash dividends are paid on a semi-annual basis. Included in the December 15, 2007 dividend of $2.40 per share was a special one-time dividend of $1.00 per share. This special dividend will not be repeated in the foreseeable future.

Performance Graph – Five-Year Shareholder Return Comparison

The following chart compares the five-year cumulative return on $100 invested on December 31, 2002 in each of the following: (1) Common Stock of Killbuck Bancshares, Inc.; (2) the Dow Jones US Index; and (3) the Dow Jones US Banks Index.

	12/02	12/03	12/04	12/05	12/06	12/07
Killbuck Bancshares, Inc.	100.00	100.92	107.65	118.78	134.05	143.94
Dow Jones US	100.00	130.75	146.45	155.72	179.96	190.77
Dow Jones US Banks	100.00	132.94	152.03	155.32	182.84	136.79

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,
	2007			2006			2005			2004			2003
For The Year:
Total interest income	$	21,680		$	20,038		$	16,618		$	14,033		$	14,283
Total interest expense		8,068			5,919			4,169			3,264			4,017
Net interest income		13,612			14,119			12,449			10,769			10,266
Provision for loan losses		127			215			377			225			390
Net interest income after provision for loan losses		13,485			13,904			12,072			10,544			9,876
Total non-interest income		1,482			1,307			1,265			1,015			1,120
Total non-interest expense		8,169			7,996			7,613			7,158			7,045
Income before income taxes		6,798			7,215			5,724			4,401			3,951
Income tax expense		1,893			1,992			1,513			982			742
Net income	$	4,905		$	5,223		$	4,211		$	3,419		$	3,209
Per share data
Net earnings	$	7.73		$	8.14		$	6.44		$	5.16		$	4.75
Dividends	$	3.75		$	3.50		$	2.20		$	1.95		$	1.85
Book value (at period end)	$	65.31		$	61.28		$	57.20		$	53.78		$	51.24
Average no. of shares outstanding		634,458			641,759			653,996			662,130			676,133
Year-end balances:
Total loans	$	199,299		$	194,623		$	208,901		$	217,173		$	201,697
Securities		83,668			64,746			45,078			45,769			58,211
Total assets		336,337			313,205			298,050			293,867			284,139
Deposits		285,451			264,301			250,349			247,349			241,724
Borrowings		8,282			8,554			9,599			10,575			7,810
Shareholders’ equity		41,118			39,134			37,049			35,359			34,062
Significant ratios:
Return on average assets		1.51	%		1.74	%		1.44	%		1.18	%		1.13	%
Return on average equity		12.88			14.58			12.24			10.26			9.77
Dividends per share to net income per share		48.51			43.03			34.16			37.72			38.95
Average equity to average assets		11.75			11.96			11.79			11.55			11.53
Loans to deposits		69.82			73.64			83.44			87.80			83.44
Allowance for loan loss to total loans		1.26			1.23			1.11			1.22			1.34

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.

A loan production facility was opened in Millersburg, Ohio in July 2003. This facility 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 opened in the German Village grocery store complex in Berlin, Ohio. In November 2007, the Berlin branch was relocated from an older building with traffic congestion to a new larger facility with ample access and parking. Both locations provide a greater level of convenience to the Berlin community.

RESULTS OF OPERATIONS

Summary

For 2007, we recorded net income of $4.9 million compared to $5.2 million for 2006 and $4.2 million for 2005.

Non-interest income was $1.5 million for 2007 compared to $1.3 million for 2006 and $1.3 million for 2005.

Total non-interest expenses were $8.2 million in 2007 compared to $8.0 million in 2006 and $7.6 million in 2005.

Earnings per share for 2007 were $7.73 compared to $8.14 for 2006 and $6.44 for 2005.

NET INTEREST INCOME

Our net interest income decreased by $507,000 in 2007 from 2006 and increased by $1,670,000 in 2006 from 2005.

Total interest income increased by $1,642,000 or 8.2% for 2007 from 2006. The increase for 2007 resulted primarily from an increase of $1,058,000 or 97.4% in interest income on Investment securities – taxable. Investment income on taxable securities of approximately $2,144,000 for 2007 compares to $1,086,000 for 2006. The increase in this investment income on taxable securities is primarily due to an increase in volume. Average investment balances on taxable securities were $41,603,000 compared to $22,136,000 and the yields were 5.15% compared to 4.91% for 2007 and 2006, respectively. The average balances of the investment portfolio increased due to decreasing loan demand and deposit growth. See “Average Balance Sheet” for the year ended December 31, 2007 and 2006. The $402,000 or 2.5% increase 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 8.09% to 8.28%. The increase in the current yield was a result of the loans repricing. The average loan portfolio increased only $167,000 or .08% for 2007 due to greater competitive loan pricing.

Total interest income increased by $3,420,000 or 20.6% for 2006 from 2005. The increase for 2006 resulted primarily from an increase of $2,158,000 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 6.60% to 8.09%. The increase in the current yield was a result of the loans repricing replacing historically low interest rates. The average loan portfolio decreased $12.0 million or 5.6% for 2006. The $584,000 increase in investment interest income resulted primarily from increases in the average volume in the investment portfolio as well as increases in the current yield on the investment portfolio. The average balances of the investment portfolio increased by $9.7 million or 20.9% for 2006 from 2005 and the yields increased from 4.33% to 4.63% due to the rate environment.

The yield on earning assets was 7.17%, 7.16%, and 6.09% for 2007, 2006, and 2005 respectively. The yield on earning assets rose slightly during 2007 and ended near their beginning point. The increase in the yield on earning assets in 2006 was attributable to the general increase in interest rates.

Interest expense for 2007 increased by $2,149,000 or 36.3% from 2006. The increase was primarily due to an increase in the cost on interest bearing liabilities, which increased 64 basis points from 2.77% in 2006 to 3.41% in 2007, and increased 78 basis points from 1.99% in 2005 to 2.77% in 2006. The increase for 2007 is due to an increase in the volume as well as the cost of time deposits. The average volume of time deposits increased $27,751,000 or 23.8% from 2006 to 2007. The cost of time deposits increased 72 basis points from 3.93% to 4.65%.

The average volume of money market deposits increased $1.1 million in 2007. Interest-bearing demand deposits and savings deposits decreased $3.4 million and $2.3 million respectively in 2007. The volume increases in time deposits and money market deposits and the decreases in other deposit categories are primarily due to the changing interest rate environment. The funds are shifting into the highest yielding deposits.

The average volume of time deposits and money market deposits increased $9.2 million and $.6 million, while interest bearing demand deposits and savings deposits decreased $1.5 million and $2.5 million respectively for 2006.

The cost on average interest-bearing liabilities was 3.41% for 2007 and 2.77% for 2006, and 1.99% for 2005.

Mainly due to an increase in the current cost on average interest-bearing liabilities, the net yield on earning assets has decreased this year reversing the rising trend of prior years. The net yield on average interest-earning assets is 4.50%, 5.04% and 4.56% for 2007, 2006 and 2005 respectively. Management believes this trend may continue due to the current competitive loan pricing environment even while the cost on average interest-bearing liabilities will start to decrease.

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
	2007						2006						2005
	Average Balance			Interest	Yield/ Rate		Average Balance			Interest	Yield/ Rate		Average Balance			Interest	Yield/ Rate
Assets
Interest earning assets:
Loans (1)(2)(3)	$	202,692		16,784	8.28	%	$	202,525		16,382	8.09	%	$	215,486		14,224	6.60	%
Securities – taxable (4)		41,603		2,144	5.15	%		22,136		1,086	4.91	%		9,863		400	4.06	%
Securities – nontaxable		31,955		1,405	4.40	%		32,034		1,406	4.39	%		34,719		1,525	4.39	%
Securities – Equity (4)(5)		1,681		105	6.25	%		1,632		93	5.73	%		1,565		76	4.86	%
Federal funds sold		24,515		1,242	5.07	%		21,657		1,071	4.95	%		11,182		393	3.51	%
Total interest-earnings assets		302,446		21,680	7.17	%		279,984		20,038	7.16	%		272,815		16,618	6.09	%
Noninterest-earning assets
Cash and due from other Institutions		10,757						9,851						9,801
Premises and equipment, net		5,952						5,293						5,175
Accrued interest		1,502						1,195						893
Other assets		5,843						5,725						5,644
Less allowance for loan losses		(2,477	)					(2,407	)					(2,510	)
Total	$	324,023					$	299,641					$	291,818
Liabilities and Shareholders Equity
Interest bearing liabilities:
Interest bearing demand		27,255		158	0.58	%		30,668		176	0.57	%		32,117		162	0.50	%
Money market accounts		18,961		506	2.67	%		17,837		418	2.34	%		17,196		235	1.37	%
Savings deposits		37,274		382	1.02	%		39,588		377	0.95	%		42,049		315	0.75	%
Time deposits		144,597		6,724	4.65	%		116,846		4,587	3.93	%		107,701		3,129	2.91	%
Short term borrowings		5,456		135	2.47	%		4,193		117	2.79	%		4,140		47	1.14	%

Average Balance Sheet and Net Interest Analysis (Continued)

	For the Year Ended December 31
	2007						2006						2005
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Federal Home Loan Bank Advances		2,855		163	5.71	%		4,683		244	5.20	%		6,084		281	4.62	%
Total interest bearing liabilities		236,398		8,068	3.41	%		213,815		5,919	2.77	%		209,287		4,169	1.99	%
Noninterest bearing liabilities:
Demand deposits		45,452						45,995						44,856
Accrued expenses and other liabilities		4,101						3,993						3,265
Shareholder’s equity		38,072						35,838						34,410
Total	$	324,023					$	299,641					$	291,818
Net interest income			$	13,612					$	14,119					$	12,449
Interest rate spread (6)					3.76	%					4.39	%					4.10	%
Net yield on interest earning assets (7)					4.50	%					5.04	%					4.56	%

(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 $353,095, $326,356, and $292,727 in 2007, 2006, and 2005, 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).

	2007 Compared to 2006									2006 Compared to 2005
	Increase (Decrease) Due To									Increase (Decrease) Due To
	Volume			Rate			Net			Volume			Rate			Net
Interest income
Loans	$	14		$	388		$	402		$	(856	)	$	3,014		$	2,158
Securities – taxable		955			103			1,058			498			188			686
Securities – nontaxable		(3	)		2			(1	)		(118	)		(1	)		(119	)
Securities – equities		3			9			12			3			14			17
Federal funds sold		141			30			171			368			310			678
Total interest earning Assets		1,110			532			1,642			(105	)		3,525			3,420
Interest expense
Interest bearing demand		(20	)		2			(18	)		(7	)		21			14
Money market accounts		26			62			88			9			174			183
Savings deposits		(22	)		27			5			(18	)		80			62
Time deposits		1,089			1,048			2,137			266			1,192			1,458
Short-term borrowing		35			(17	)		18			1			69			70
Federal Home Loan Bank
Advances		(95	)		14			(81	)		(64	)		27			(37	)
Total interest bearing Liabilities		1,013			1,136			2,149			187			1,563			1,750
Net change in interest income	$	97		$	(604	)	$	(507	)	$	(292	)	$	1,962		$	1,670

Provision for Loan Losses

The provision for loan losses was $127,119 for 2007, $214,514 for 2006, and $376,722 for 2005. 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 1.26%, 1.23%, and 1.11% for 2007, 2006 and 2005 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 $175,000 or 13.4% to $1,482,000 in 2007 from $1,307,000 in 2006 and a $43,000 or 3.4% increase from $1,264,000 for 2005. NSF Service charges increased $197,000 or 32.3% in 2007. This increase is due to the overdraft program, which began in the fourth quarter 2006. In 2006, NSF service charges increased $127,000 or 26.3% due mainly to the new overdraft program. The Bank sells fixed rate loans in the secondary market. Due to market conditions, the Bank originated and sold $2.9 million less of these loans in 2007 compared to 2006. Gains for these sales were $21,000 in 2007, $35,000 in 2006, and $72,000 in 2005.

Other Income decreased $13,000 or 4.1% to $303,000 in 2007 from $316,000 for 2006, due primarily from the decrease in income from the alternative investment service of approximately $9,000. This income was $30,000 for 2007 and $39,000 for 2006 and $66,000 for 2005. In 2006, Other Income decreased $52,000 due primarily to the $27,000 decrease in income from the alternative investment service.

Noninterest Expense

Total non-interest expense increased $173,000 or 2.2% to $8,169,000 in 2007 as compared to $7,996,000 in 2006 and increased $383,000 or 5.0% for 2006 from $7,613,000 in 2005.

Salary and employee benefits for 2007 totaled $4,757,000, an increase of $214,000 or 4.7% from $4,543,000 in 2006 and increased $254,000 or 5.9% from $4,289,000 in 2005. Approximately $68,000 of the increase is due to medical group insurance costs. These remaining increases are due to normal increases for annual salary raises and employee benefits. The increase for 2006 was attributable to higher medical group insurance costs due to the insurer mandating a higher limit for the partially self-funded plan, staff additions, and normal recurring employee cost increases for salary and employee benefits.

Occupancy and equipment expense increased $6,000 in 2007 and increased $40,000 in 2006. The changes were attributable to changes in items that are normal and recurring in nature. In 2006, approximately $31,000 is attributable to the timing in recording of Real Estate Taxes.

Other operating expenses for 2007 totaled $2,431,000, a $47,000 or 1.9% decrease from the $2,478,000 reported in 2006 and an $89,000 or 3.7% increase from the $2,389,000 reported in 2005. Professional fees decreased approximately $51,000 or 15.5 % from $328,000 in 2006 to $277,000 for 2007. Approximately $7,200 of the decrease is related to no longer utilizing the services of a Human Resources consultant, approximately $19,000 was related to a Human Resources Recruiter, approximately $8,000 was related to strategic planning, and approximately $7,000 was related to new product development. Professional fees relating to legal expenses decreased approximately $11,000. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.

In 2006, Professional fees increased approximately $15,000 or 4.6 % from $313,000 in 2005 to $328,000. Professional fees related to consultants increased approximately $33,000 of which approximately $19,000 was related to a Human Resources Recruiter, approximately $8,000 was related to strategic planning, and approximately $7,000 was related to new product development.

Income Tax Expense

Income tax expense decreased $99,000 for 2007 to $1,893,000 from $1,992,000 in 2006; and increased $479,000 for 2006 to $1,992,000 from $1,513,000 in 2005. The effective rate on taxes for 2007, 2006 and 2005 was 27.9%, 27.2% and 26.4% 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, 2007 and 2006

Total assets at December 31, 2007 amounted to $336.3 million, an increase of $23.1 million compared to $313.2 million at December 31, 2006.

Cash and cash equivalents decreased $1.5 million or 3.5% from December 31, 2006 to December 31, 2007, with liquid funds held in the form of federal funds sold increasing $1.4 million. The increase in federal funds sold at December 31, 2007 is the excess of funds from the net increase in deposits that was not used in investing activities, financing activities, or operating activities.

Total investment securities increased $18.9 million or 29.2% from December 31, 2006 to December 31, 2007. The increase in investments was due to the excess funds available due to the slow demand in loans and the planned effort to rebuild the securities portfolio. 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 $199.3 million at December 31, 2007 an increase of $4.7 million or 2.4% from $194.6 million at December 31, 2006. Even though totals loans increased, the overall conservative nature of the people in the communities we serve is evident. The commercial real estate loan portfolio increased approximately $9.7 million, the commercial and other loan portfolio increased approximately $5.4 million, and the consumer and credit loan portfolio increased approximately $.3 million while the residential real estate loan portfolio, the agriculture real estate loan portfolio, and the construction real estate loan portfolio decreased $4.2 million, $3.4 million, and $3.1 million respectively.

The mix of the residential 1 to 4 family mortgages continued to change due to the increase in lending rates. The fixed rate mortgages continued to increase while the adjustable rate mortgages continued to decrease. Residential 1 to 4 family fixed rate mortgages increased by approximately $4.1 million from 2006. In the late 1990’s, we began offering residential mortgage customers a fixed rate product. This program enabled 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 $5.8 million and $8.8 million of loans in 2007 and 2006. Profit on the sale of these loans was $21,000 and $35,000 for 2007 and 2006. Information detailing the composition of the loan portfolio is presented in Note 4 to the consolidated financial statements.

Total deposits increased $21.2 million or 8.0% from December 31, 2006 to December 31, 2007. Non-interest bearing demand deposit accounts, money market deposits, and time deposits increased $2.5 million, $1.3 million and $20.7 million, respectively. The interest bearing demand deposits and savings deposits decreased $3.0 million, and $.3 million, respectively. The increases are attributable to new deposit account growth and internal movement of 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 2007 and 2006. Information related to the maturity of time deposits of $100,000 and over at December 31, 2007 is presented in Note 8 of the accompanying consolidated financial statements.

Advances were $2.5 million and $3.2 million at December 31, 2007 and 2006 respectively. In 2007, there were no new advances. Additional information on the Federal Home Loan Bank Advances is presented in Note 10 of the accompanying consolidated financial statements.

Shareholders’ equity increased $2.0 million during 2007 to $41.1 million at December 31, 2007 from $39.1 million at December 31, 2006. This increase was the result of $4.9 million in net earnings during the year, a net unrealized gain on securities available for sale of $.5 million, and Cash Dividends paid totaling $2.4 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 2007.

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 2.0% 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.

Management expected interest rates to stabilize and begin to fall in 2007; therefore, we began to align the balance sheet for liabilities to begin repricing more quickly than earning assets, which resulted in the positive Gap decreasing significantly. Management anticipates the cost on average interest-bearing liabilities to begin decreasing; however, since these rates never returned to the levels before the historic lows, there is not a lot of room to lower them. While the current competitive loan-pricing environment continues to exert a downward pressure on the yields on loans, which was a significant component of the net yield on earning assets in 2007, the net interest margin is expected to continue experiencing compression in 2008.

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 variable rate loans and as of December 31, 2007, they comprised approximately 72.9% 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, 2007 and 2006 are 28% and 25%, respectively.

Operating activities, as presented in the statement of cash flows in the accompanying consolidated financial statements, provided $5.1 million and $5.3 million in cash during 2007 and 2006 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 used $24.1 million in funds during 2007 principally by the net purchases of investments, the net funding of loans, and the net purchase of fixed assets of $18.2 million, $4.7 million, and $1.3 million respectively; and provided funds from the net proceeds from the sale of Other Real Estate Owned (OREO) totaling $.1 million. These activities used $5.6 million in funds during 2006 principally by the net purchases of investments and the net purchase of technology and fixed assets of $19.4 million and $.9 million, respectively; and provided funds by the net payments of loans of $14.1 million and from the net proceeds from the sale of OREO totaling $.6 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 2007, financing activities provided $17.5 million, comprised mainly of net deposit increases of $21.2 million and net increase in short-term borrowings of $.4 million; and used funds in the repayment of Federal Home Loan Bank advances of $.7 million, the purchase of treasury stock of $1.0 million, and the payment of dividends of $2.4 million.

For 2006, financing activities provided $9.7 million in funds, comprised mainly of net deposit increases of $13.9 million and net increase in short-term borrowings of $1.7 million; and used $5.9 million in funds in repayment of Federal Home Loan Bank advances of $2.7 million, purchase of treasury stock of $1.0 million and payment of dividends of $2.2 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, 2007.

Our regulatory capital position at December 31, 2007, 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.

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 variable rate loans and as of December 31, 2007, they comprised approximately 72.9% 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. 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.

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 using 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 7.0% and a 2% immediate decrease in interest rates would decrease earnings by 6.9%.

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.

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.

The following table presents the Bank’s interest rate sensitivity gap position as of December 31, 2007 (dollars in thousands):

INTEREST RATE SENSITIVITY GAPS

(IN THOUSANDS)

	2008			2009			2010			2011			2012			Thereafter			Total
Interest-earnings assets:
Loans:
Fixed	$	17,855		$	8,665		$	5,618		$	4,573		$	3,486		$	13,806		$	54,003
Variable		104,986			11,023			10,464			9,295			5,876			3,652			145,296
Securities:
Fixed		7,476			8,402			11,829			14,512			15,655			25,794			83,668
Other interest-earning assets		29,548			—			—			—			—			—			29,548
Total interest-earning assets		159,865			28,090			27,911			28,380			25,017			43,252			312,515
Interest-bearing liabilities:
Demand and savings deposits		25,432			25,432			25,432			25,430			—			—			101,726
Time deposits:
Fixed		125,034			20,569			2,192			2,533			2,676			3			153,007
Short-term borrowings		5,745			—			—			—			—			—			5,745
FHLB advances		723			642			530			224			175			243			2,537
Total interest-bearing liabilities		156,934			46,643			28,154			28,187			2,851			246			263,015
Interest rate sensitivity gap		2,931			(18,553	)		(243	)		193			22,166			43,006
Cumulative rate sensitivity gap	$	2,931		$	(15,622	)	$	(15,865	)	$	(15,672	)	$	6,494		$	49,500
Cumulative interest rate sensitivity gap as a percent of interest earning assets		0.94	%		-5.00	%		-5.08	%		-5.01	%		2.08	%		15.84	%

Killbuck Bancshares, Inc.

Killbuck, Ohio

Audit Report

December 31, 2007

Killbuck Bancshares, Inc.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

	Page Number
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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management’s assertion about the effectiveness of Killbuck Bancshares, Inc. internal control over financial reporting as of December 31, 2007, which is included in Form 10-K and, accordingly, we do not express an opinion thereon.

/s/ S.R. Snodgrass, A.C.

Steubenville, Ohio

February 29, 2008

-2-

Killbuck Bancshares, Inc.

CONSOLIDATED BALANCE SHEET

	December 31,
	2007			2006
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	11,794,750		$	14,732,362
Federal funds sold		29,378,000			27,973,000
Total cash and cash equivalents		41,172,750			42,705,362
Investment securities:
Securities available for sale		54,115,975			34,752,975
Securities held to maturity (fair value of $30,247,416 and $30,684,221)		29,552,217			29,992,583
Total investment securities		83,668,192			64,745,558
Loans (net of allowance for loan losses of $2,510,011 and $2,393,705)		196,519,881			191,932,069
Loans held for sale		170,000			172,500
Premises and equipment, net		6,537,553			5,713,596
Accrued interest receivable		1,589,899			1,396,267
Goodwill, net		1,329,249			1,329,249
Other assets		5,349,524			5,210,886
Total assets	$	336,337,048		$	313,205,487
LIABILITIES
Deposits:
Noninterest bearing demand	$	51,195,017		$	48,693,192
Interest bearing demand		27,475,379			30,473,620
Money market		16,306,095			15,050,083
Savings		37,467,917			37,744,514
Time		153,006,933			132,339,103
Total deposits		285,451,341			264,300,512
Short-term borrowings		5,745,000			5,310,281
Federal Home Loan Bank advances		2,536,851			3,243,371
Accrued interest and other liabilities		1,486,215			1,217,526
Total liabilities		295,219,407			274,071,690
SHAREHOLDERS’ EQUITY
Common stock – No par value: 1,000,000 shares authorized, 718,431 issued		8,846,670			8,846,670
Retained earnings		39,848,570			37,315,334
Accumulated other comprehensive income		498,651			4,892
Treasury stock, at cost (88,849 and 79,789 shares)		(8,076,250	)		(7,033,099	)
Total shareholders’ equity		41,117,641			39,133,797
Total liabilities and shareholders’ equity	$	336,337,048		$	313,205,487

See accompanying notes to the consolidated financial statements.

-3-

Killbuck Bancshares, Inc.

CONSOLIDATED STATEMENT OF INCOME

	Year Ended December 31,
	2007		2006		2005
INTEREST INCOME
Interest and fees on loans	$	16,784,112	$	16,381,634	$	14,224,557
Federal funds sold		1,241,808		1,071,435		392,963
Investment securities:
Taxable		2,248,837		1,179,370		475,958
Exempt from federal income tax		1,405,633		1,405,745		1,524,894
Total interest income		21,680,390		20,038,184		16,618,372
INTEREST EXPENSE
Deposits		7,770,422		5,559,002		3,841,007
Short term borrowings		135,038		116,882		47,447
Federal Home Loan Bank advances		163,407		243,602		280,628
Total interest expense		8,068,867		5,919,486		4,169,082
NET INTEREST INCOME		13,611,523		14,118,698		12,449,290
Provision for loan losses		127,119		214,514		376,722
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		13,484,404		13,904,184		12,072,568
NONINTEREST INCOME
Service charges on deposit accounts		352,367		344,982		341,431
NSF & OD fees, net		806,722		610,406		482,875
Gain on sale of loans, net		20,517		35,207		72,492
Other income		302,895		316,464		367,670
Total noninterest income		1,482,501		1,307,059		1,264,468
NONINTEREST EXPENSE
Salaries and employee benefits		4,757,261		4,543,331		4,288,850
Occupancy and equipment		980,920		974,553		934,534
Other expense		2,430,897		2,478,005		2,389,316
Total noninterest expense		8,169,078		7,995,889		7,612,700
INCOME BEFORE INCOME TAXES		6,797,827		7,215,354		5,724,336
Income taxes		1,893,128		1,991,961		1,513,468
NET INCOME	$	4,904,699	$	5,223,393	$	4,210,868
EARNINGS PER SHARE	$	7.73	$	8.14	$	6.44
WEIGHTED AVERAGE SHARES OUTSTANDING		634,911		642,141		654,289

See accompanying notes to the consolidated financial statements.

-4-

Killbuck Bancshares, Inc.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity			Comprehensive Income
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
Net income				5,223,393									5,223,393		$	5,223,393
Other comprehensive income:
Unrealized gain on available for sale securities, net of tax of $35,869							69,628						69,628			69,628
Comprehensive income															$	5,293,021
Cash dividends paid ($3.50 per share)				(2,240,163	)								(2,240,163	)
Purchase of Treasury Stock, at cost (9,118 shares)										(968,364	)		(968,364	)
BALANCE, DECEMBER 31, 2006		8,846,670		37,315,334			4,892			(7,033,099	)		39,133,797
Net income				4,904,699									4,904,699		$	4,904,699
Other comprehensive income:
Unrealized gain on available for sale securities, net of tax of $254,361							493,759						493,759			493,759
Comprehensive income															$	5,398,458
Cash dividends paid ($3.75 per share)				(2,371,463	)								(2,371,463	)
Purchase of Treasury Stock, at cost (9,060 shares)										(1,043,151	)		(1,043,151	)
BALANCE, DECEMBER 31, 2007	$	8,846,670	$	39,848,570		$	498,651		$	(8,076,250	)	$	41,117,641

See accompanying notes to the consolidated financial statements.

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Killbuck Bancshares, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

	Year Ended December 31,
	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	4,904,699		$	5,223,393		$	4,210,868
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		127,119			214,514			376,722
Depreciation, amortization and accretion, net		359,585			294,640			282,704
Gain on sale of loans, net		(20,517	)		(35,207	)		(72,492	)
Origination of loans held for sale		(5,828,620	)		(8,691,135	)		(12,287,154	)
Proceeds from the sale of loans		5,851,637			8,648,442			12,432,545
Federal Home Loan Bank stock dividend		(19,700	)		(72,200	)		(55,200	)
Net changes in:
Accrued interest and other assets		(304,501	)		(364,131	)		(196,631	)
Accrued interest and other liabilities		6,259			98,705			457,997
Net cash provided by operating activities		5,075,961			5,317,021			5,149,359
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments		13,297,670			2,564,933			5,246,396
Purchases		(31,887,283	)		(22,874,680	)		(9,951,484	)
Investment securities held to maturity:
Proceeds from maturities and repayments		4,957,302			5,174,959			5,743,430
Purchases		(4,503,250	)		(4,346,635	)		(396,456	)
Net (increase) decrease in loans		(4,714,930	)		14,095,363			7,542,647
Purchase of premises and equipment		(1,302,496	)		(874,329	)		(1,269,333	)
Net proceeds from sale of other real estate owned		80,000			620,000			—
Net cash (used in) provided by investing activities		(24,072,987	)		(5,640,389	)		6,915,200
FINANCING ACTIVITIES
Net increase in deposits		21,150,829			13,951,362			3,000,389
Net increase (decrease) in short-term borrowings		434,719			1,700,281			(120,000	)
Proceeds from Federal Home Loan Bank advances		—			—			1,700,000
Repayment of Federal Home Loan Bank advances		(706,520	)		(2,745,680	)		(2,556,291	)
Purchase of treasury shares		(1,043,151	)		(968,364	)		(982,824	)
Cash dividends paid		(2,371,463	)		(2,240,163	)		(1,437,738	)
Net cash provided by (used in) financing activities		17,464,414			9,697,436			(396,464	)
(Decrease) increase in cash and cash equivalents		(1,532,612	)		9,374,068			11,668,095
Cash and cash equivalents at beginning of year		42,705,362			33,331,294			21,663,199
Cash and cash equivalents at end of year	$	41,172,750		$	42,705,362		$	33,331,294

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 collectability 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 collectability, 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.

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.

-8-

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

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, 2007 and 2006 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.

Recent Accounting Pronouncements

In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations (“FAS 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The Standard does not expand the use of fair value in any new circumstances. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In September 2006, the FASB issued FAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). This Statement requires that employers measure plan assets and obligations as of the balance sheet date. This requirement is effective for fiscal years ending after December 15, 2008. The other provisions of the Statement were effective as of the end of the fiscal year ending after December 15, 2006, for public companies. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

-9-

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115, which provides all entities with an option to report selected financial assets and liabilities at fair value. The objective of the FAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the complex provisions of hedge accounting. FAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007 provided the entity also elects to apply the provisions of FAS No. 157, Fair Value Measurements. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In September 2006, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 06-4 (“EITF 06-4”), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The guidance is applicable to endorsement split-dollar life insurance arrangements, whereby the employer owns and controls the insurance policy, that are associated with a postretirement benefit. EITF 06-4 requires that for a split-dollar life insurance arrangement within the scope of the Issue, an employer should recognize a liability for future benefits in accordance with FAS No. 106 (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company is currently evaluating the impact the adoption of the EITF will have on the Company’s results of operations.

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 (“EITF 06-10”), Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements. EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The adoption of this EITF is not expected to have a material effect on the Company’s results of operations or financial position.

In June 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-11 (“EITF 06-11”), Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends on equity-classified nonvested shares, (b) dividend equivalents on equity-classified nonvested share units, or (c) payments equal to the dividends paid on the underlying shares while an equity-classified share option is outstanding, when those dividends or dividend equivalents are charged to retained earnings under FAS No. 123R, Share-Based Payment, and result in an income tax deduction for the employer. A consensus was reached that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity-classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase in additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The adoption of this EITF 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 2007, 2006 and 2005 were $8,002,386, $5,817,972, and $4,086,202, respectively. Cash payments for income taxes for 2007, 2006, and 2005 were $2,021,760, $1,981,287, and $1,233,912 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:

	2007					2006
Institution	Rate		Maturity	Balance		Rate		Maturity	Balance
National City Bank	3.44	%	1-02-08	$	14,530,000	5.06	%	1-02-07	$	17,973,000
Great Lakes Bankers Bank	3.91	%	1-02-08		14,848,000	5.16	%	1-02-07		10,000,000
				$	29,378,000				$	27,973,000

-11-

3. INVESTMENT SECURITIES

The amortized cost of securities and their estimated fair values are as follows:

Securities Available for Sale

	2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of U.S. Government Agencies and Corporations	$	52,360,443	$	776,418	$	20,886	$	53,115,975
Mutual Funds		1,000,000		—		—		1,000,000
Total	$	53,360,443	$	776,418	$	20,886	$	54,115,975

	2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of U.S. Government Agencies and Corporations	$	34,745,564	$	106,828	$	99,417	$	34,752,975
Total	$	34,745,564	$	106,828	$	99,417	$	34,752,975

Securities Held to Maturity

	2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of States and Political Subdivisions	$	29,552,217	$	718,539	$	23,340	$	30,247,416
Total	$	29,552,217	$	718,539	$	23,340	$	30,247,416

	2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of States and Political Subdivisions	$	29,992,583	$	744,130	$	52,492	$	30,684,221
Total	$	29,992,583	$	744,130	$	52,492	$	30,684,221

-12-

3. INVESTMENT SECURITIES (CONTINUED)

The amortized cost and fair values of debt securities at December 31, 2007, 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
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	4,996,125	$	5,006,620	$	2,468,815	$	2,492,987
Due after one year through five years		34,612,722		35,208,225		15,190,506		15,611,178
Due after five through ten years		13,459,161		13,618,636		11,692,228		11,941,745
Due after ten years		292,435		282,494		200,668		201,506
	$	53,360,443	$	54,115,975	$	29,552,217	$	30,247,416

Investment securities with an approximate carrying value of $34,978,000 and $34,929,000 at December 31, 2007 and 2006, 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, 2007 and 2006. As of December 31, 2007, there were a total of twenty three securities in a loss position.

	2007
	Less Than Twelve Months				Twelve Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Government agencies and corporations	$	1,416,959	$	3,933	$	1,974,258	$	16,953	$	3,391,217	$	20,886
Obligations of states and Political subdivisions		1,184,025		7,769		1,319,172		15,571		2,503,197		23,340
Total debt securities	$	2,600,984	$	11,702	$	3,293,430	$	32,524	$	5,894,414	$	44,226
	2006
	Less Than Twelve Months				Twelve Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Government agencies and corporations	$	8,973,810	$	25,972	$	7,630,037	$	73,445	$	16,603,847	$	99,417
Obligations of states and Political subdivisions		1,468,099		5,329		2,160,399		47,163		3,628,498		52,492
Total debt securities	$	10,441,909	$	31,301	$	9,790,436	$	120,608	$	20,232,345	$	151,909

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 non-collection of principal and interest, during the period.

4. LOANS

Major classification of loans are summarized as follows:

	2007			2006
Real estate – residential	$	72,857,699		$	77,024,815
Real estate – farm		9,966,991			13,367,589
Real estate – commercial		59,816,968			50,147,368
Real estate – construction		7,778,076			10,917,038
Commercial and other loans		41,678,124			36,225,488
Consumer and credit loans		7,200,963			6,940,764
		199,298,821			194,623,062
Less allowance for loan losses		(2,510,011	)		(2,393,705	)
Less net deferred loan fees		(268,929	)		(297,288	)
Loans, net	$	196,519,881		$	191,932,069

Loans held for sale at December 31, 2007 and 2006 were $170,000 and $172,500 respectively. Real estate loans serviced for Freddie Mac, which are not included in the consolidated balance sheet, totaled $53,527,726 and $53,327,778 at December 31, 2007 and 2006, 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.

	2007		2006		2005
Principal outstanding	$	838,877	$	471,101	$	631,791
Contractual interest due	$	34,833	$	54,227	$	31,115
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, 2007 and 2006, 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 $120,000 for the year ended December 31, 2007 is as follows:

Balance December 31, 2006	Additions		Amounts Collected		Balance December 31, 2007
$ 3,706,692	$	150,264	$	169,110	$	3,687,846

-14-

5. ALLOWANCE FOR LOAN LOSSES

An analysis of the change in the allowance for loan losses follows:

	2007			2006			2005
Balance, January 1	$	2,393,705		$	2,313,313		$	2,645,981
Add:
Provision charged to operations		127,119			214,514			376,722
Loan recoveries		120,973			360,199			74,953
Less: Loans charged off		(131,786	)		(494,319	)		(784,343	)
Balance, December 31	$	2,510,011		$	2,393,705		$	2,313,313

6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	2007			2006
Land	$	2,050,242		$	2,050,242
Building and improvements		5,425,873			4,484,824
Leasehold improvements		78,598			75,619
Furniture, fixtures and equipment		3,748,121			3,939,690
Other real estate owned		—			80,000
		11,302,834			10,630,375
Less accumulated depreciation		(4,765,281	)		(4,916,779	)
Total	$	6,537,553		$	5,713,596

Depreciation expense charged to operations was $381,779 for 2007, $368,995 for 2006, and $378,558 for 2005.

7. GOODWILL

As of December 31, 2007 and 2006, 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 $57,367,824 and $46,956,911 at December 31, 2007 and 2006, respectively.

Interest expense on certificates of deposit $100,000 and over amounted to $2,353,663 in 2007, $1,502,305 in 2006, and $1,010,191 in 2005.

The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 2007.

3 months or less	$	21,210,145
Over 3 through 6 months		13,108,141
Over 6 through 12 months		14,031,078
Over 12 months		9,018,460
Total	$	57,367,824

-15-

8. DEPOSITS (CONTINUED)

The following table sets forth the remaining maturity of all time deposits at December 31, 2007.

12 month or less	$	125,034,374
12 months through 24 months		20,568,604
24 months through 36 months		3,391,611
36 months through 48 months		1,333,368
48 months through 60 months		2,676,353
Over 60 months		2,623
	$	153,006,933

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:

	2007			2006
Short-term borrowings:
Ending balance	$	5,745,000		$	5,310,281
Maximum month-end balance during the year		6,390,000			5,310,281
Average month-end balance during the year		5,484,198			4,389,190
Weighted average at year end		1.24	%		3.06	%
Weighted average rate during the year		2.46	%		2.66	%

The Company has pledged investment securities with carrying values of $7,102,740 and $6,001,590 as of December 31, 2007 and 2006, 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 2007 through 2017. The weighted average rate paid on the advances is 5.62%. The scheduled aggregate minimum future principal payments on the advances outstanding as of December 31, 2007 are as follows:

Year Ending December 31,	Amount
2008	$	723,457
2009		642,235
2010		530,361
2011		223,756
2012		174,686
2013 and thereafter		242,356
Total	$	2,536,851

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, 2007 the Bank had a borrowing capacity of approximately $40.2 million with the FHLB. At December 31, 2007 and 2006 there was $2,536,851 and $3,243,371, 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 2007 and 2006 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 2007, the annual contribution to a participant’s retirement account may not exceed $45,000.

The pension costs charged to operating expense for the years 2007, 2006 and 2005 amounted to $318,646, $301,650, and $275,660, respectively.

12. OTHER OPERATING EXPENSE

Other operating expense included the following:

	2007		2006		2005
Professional fees	$	276,684	$	327,579	$	313,062
Franchise tax		488,388		460,580		438,630
Telephone		169,388		160,381		158,748
Stationery, supplies and printing		165,438		173,147		160,646
Postage, express and freight		183,047		171,752		155,388
Data processing		177,081		157,012		148,822
Other		970,871		1,027,554		1,014,020
Total	$	2,430,897	$	2,478,005	$	2,389,316

13. OPERATING LEASES

The bank leases the space housing the German Village branch located in Berlin, Ohio. The lease expires in six 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		38,942
3 to 5 years		40,515
Greater than 5 years		253,925
	$	352,282

14. INCOME TAXES

The provision for federal income taxes for the years ended December 31 consist of:

	2007		2006		2005
Current payable	$	1,885,059	$	1,731,861	$	1,516,365
Deferred		8,069		260,100		(2,897	)
Total provision	$	1,893,128	$	1,991,961	$	1,513,468

-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:

	2007					2006					2005
	Amount			% of Pre-Tax Income		Amount			% of Pre-Tax Income		Amount			% of Pre-Tax Income
Provision at statutory rate	$	2,311,261		34.0	%	$	2,453,220		34.0	%	$	1,946,274		34.0	%
Tax exempt income		(477,915	)	(7.0	)		(485,601	)	(7.0	)		(519,659	)	(9.1	)
Non-deductible interest Expense		52,577		0.8			31,167		0.4			33,291		0.6
Other, net		7,205		0.1			(6,825	)	(0.2	)		53,562		0.9
Tax expense and effective rate	$	1,893,128		27.9	%	$	1,991,961		27.2	%	$	1,513,468		26.4	%

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:

	2007			2006
Deferred Tax Assets:
Allowance for loan losses	$	656,391		$	617,497
Deferred loan fees		995			3,035
Other		11,627			—
Deferred tax asset		669,013			620,532
Deferred Tax Liabilities:
Premise and equipment		335,441			335,041
Stock dividends		225,590			218,892
Net unrealized gain on securities		256,881			2,583
Other, net		190,353			140,901
Deferred tax liabilities	$	1,008,265		$	697,417
Net deferred tax (liabilities) assets	$	(339,252	)	$	(76,885	)

No valuation allowance was established at December 31, 2007 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:

	2007		2006
Commitments to extend credit	$	42,070,000	$	38,064,000
Standby letters of credit		785,000		1,097,000
Total	$	42,855,000	$	39,161,000

-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 2007, 2006 or 2005.

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 2008, without the approval of the regulatory authorities, is $2,584,838 plus 2008 profits retained up to the date of the dividend declaration.

Included in cash and due from banks are required federal reserves of $3,706,000 and $3,798,000 at December 31, 2007 and 2006, 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, 2007 and 2006.

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, 2007 and 2006, 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.

	2007				2006
Amounts expressed in thousands	Amount		Ratio		Amount		Ratio
Total Risk Based Capital (to Risk Weighted Assets)
Actual	$	41,801	18.90	%	$	40,194	19.09	%
For Capital Adequacy Purposes		17,695	8.00			16,844	8.00
To be well capitalized		22,119	10.00			21,055	10.00
Tier 1 Capital (to Risk Weighted Assets)
Actual		39,291	17.76	%		37,800	17.95	%
For Capital Adequacy Purposes		8,848	4.00			8,422	4.00
To be well capitalized		13,271	6.00			12,633	6.00
Tier 1 Capital (to Average Assets)
Actual		39,291	11.75	%		37,800	12.33	%
For Capital Adequacy Purposes		13,376	4.00			12,266	4.00
To be well capitalized		16,719	5.00			15,333	5.00

18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values at December 31 are as follows:

	2007				2006
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and due from depository institutions	$	11,794,750	$	11,794,750	$	14,732,362	$	14,732,362
Federal funds sold		29,378,000		29,378,000		27,973,000		27,973,000
Securities available for sale		54,115,975		54,115,975		34,752,975		34,752,975
Securities held to maturity		29,552,217		30,247,416		29,992,583		30,684,000
Net loans		196,519,881		203,523,000		191,932,069		194,269,000
Loans held for sale		170,000		170,000		172,500		172,500
Accrued interest receivable		1,589,899		1,589,899		1,396,267		1,396,267
Regulatory Stock		1,680,910		1,680,910		1,661,210		1,661,210
Bank Owned Life Insurance		3,400,735		3,400,735		3,272,451		3,272,451
Financial liabilities:
Deposits	$	285,451,341	$	287,527,408	$	264,300,512	$	264,271,409
Short term borrowings		5,745,000		5,745,000		5,310,281		5,310,281
Federal Home Loan Bank advances		2,536,851		2,716,000		3,243,371		3,378,000
Accrued interest payable		402,232		402,232		335,751		335,751

-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,
	2007		2006
ASSETS
Cash	$	258,597	$	314,318
Dividends Cash		110,149		142,185
Investment in bank subsidiary		39,859,044		38,819,421
Investment – Available for Sale		1,000,000		—
Total assets	$	41,227,790	$	39,275,924
LIABILITIES AND SHAREHOLDERS’ EQUITY
Dividend Checks Outstanding	$	110,149	$	142,127
Shareholders’ equity		41,117,641		39,133,797
Total liabilities and shareholders’ equity	$	41,227,790	$	39,275,924

CONDENSED STATEMENT OF INCOME

	Year Ended December 31,
	2007			2006			2005
INCOME
Dividends from bank subsidiary	$	4,400,000		$	3,225,000		$	2,750,000
Operating expenses		62,370			61,487			102,415
Income before income taxes		4,337,630			3,163,513			2,647,585
Income tax benefit		(21,206	)		(20,905	)		(34,804	)
Income before equity in undistributed net income of subsidiary		4,358,836			3,184,418			2,682,389
Equity in undistributed net income of subsidiary		545,863			2,038,975			1,528,479
NET INCOME	$	4,904,699		$	5,223,393		$	4,210,868

-22-

19. PARENT COMPANY (CONTINUED)

CONDENSED STATEMENT OF CASH FLOWS

	Year Ended December 31,
	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	4,904,699		$	5,223,393		$	4,210,868
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiary		(545,863	)		(2,038,975	)		(1,528,479	)
(Decrease) increase in other liabilities		(31,979	)		11,848			51,198
Net cash provided by operating activities		4,326,857			3,196,266			2,733,587
INVESTING ACTIVITIES
Purchase Investment Securities Available for Sale		(1,000,000	)		—			—
Net cash used in investing activities		(1,000,000	)		—			—
FINANCING ACTIVITIES
Purchase of treasury shares		(1,043,151	)		(968,364	)		(982,824	)
Dividends paid		(2,371,463	)		(2,240,163	)		(1,437,738	)
Advance from subsidiary		—			—			50,937
Net cash used in financing activities		(3,414,614	)		(3,208,527	)		(2,369,625	)
INCREASE (DECREASE) IN CASH		(87,757	)		(12,261	)		363,962
CASH AT BEGINNING OF YEAR		456,503			468,764			104,802
CASH AT END OF YEAR	$	368,746		$	456,503		$	468,764

-23-

20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

(IN THOUSANDS EXCEPT PER SHARE DATA)

	Three Months Ended
	March 2007		June 2007		September 2007		December 2007
Total interest income	$	5,300	$	5,483	$	5,496	$	5,401
Total interest expense		1,872		2,012		2,088		2,096
Net interest income		3,428		3,471		3,408		3,305
Provision for loan losses		5		62		60		—
Net interest income after provision for loans losses		3,423		3,409		3,348		3,305
Total noninterest income		330		369		377		406
Total noninterest expense		2,163		1,905		2,113		1,988
Income before income taxes		1,590		1,873		1,612		1,723
Income taxes		422		560		438		473
Net income	$	1,168	$	1,313	$	1,174	$	1,250
Per share data:
Net earnings	$	1.83	$	2.06	$	1.85	$	1.98
Weighted average shares outstanding		638,244		636,455		634,383		630,561

-24-

20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

(IN THOUSANDS EXCEPT PER SHARE DATA)

	Three Months Ended
	March 2006		June 2006		September 2006		December 2006
Total interest income	$	4,711	$	4,954	$	5,110	$	5,264
Total interest expense		1,258		1,389		1,528		1,745
Net interest income		3,453		3,565		3,582		3,519
Provision for loan losses		60		60		—		95
Net interest income after provision for loans losses		3,393		3,505		3,582		3,424
Total noninterest income		310		317		304		376
Total noninterest expense		2,119		1,914		2,017		1,946
Income before income taxes		1,584		1,908		1,869		1,854
Income taxes		422		560		508		502
Net income	$	1,162	$	1,348	$	1,361	$	1,352
Per share data:
Net earnings	$	1.80	$	2.10	$	2.12	$	2.12
Weighted average shares outstanding		645,729		642,346		641,491		639,079

-25-

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certification

I, Luther Proper, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 26, 2008	/s/ Luther Proper, CEO
	Luther Proper, CEO

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certification

I, Diane Knowles, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 26, 2008	/s/ Diane Knowles, CFO
	Diane Knowles, CFO

EX-32.1

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, 2007 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 26, 2008

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

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, 2007 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 26, 2008

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.