##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For Quarter Ended June 30, 2006



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

Commission File Number 000-24147



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KILLBUCK BANCSHARES, INC.

(Exact
name of registrant as specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|OHIO                                                           |  | 34-1700284                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

165 N. Main Street, Killbuck, OH 44637

(Address of principal executive offices and zip code)

(330) 276-2771

(Registrants telephone number, including area code)



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

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act.

Larger accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  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

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

Class: Common Stock, no par value

Outstanding at July 31, 2006: 641,641



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##### Table of Contents

KILLBUCK BANCSHARES, INC.

Index



|                              |  |                                                                                                  |  |            
|----------------------------- |  | ------------------------------------------------------------------------------------------------ |  | -----------
|                              |  |                                                                                                  |  | Page Number
|PART I. FINANCIAL INFORMATION |  |                                                                                                 
|Item 1.                       |  | Financial Statements (Unaudited):                                                                |  |            
|                              |  |                                                                                                 
|                              |  | Consolidated Balance Sheet as of June 30, 2006 and December 31, 2005                             |  | 3          
|                              |  |                                                                                                 
|                              |  | Consolidated Statement of Income for the six months ended June 30, 2006 and 2005                 |  | 4          
|                              |  |                                                                                                 
|                              |  | Consolidated Statement of Income for the three months ended June 30, 2006 and 2005               |  | 5          
|                              |  |                                                                                                 
|                              |  | Consolidated Statement of Changes In Shareholders Equity for the six months ended June 30, 2006 |  | 6          
|                              |  |                                                                                                 
|                              |  | Consolidated Statement of Cash Flows for the six months ended June 30, 2006 and 2005             |  | 7          
|                              |  |                                                                                                 
|                              |  | Notes to Unaudited Consolidated Financial Statements                                             |  | 8-9        
|                              |  |                                                                                                 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations            |  | 10-19      
|                              |  |                                                                                                 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                       |  | 20-21      
|                              |  |                                                                                                 
|Item 4.                       |  | Controls and Procedures                                                                          |  | 22         
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                 
|Item 1.                       |  | Legal Proceedings                                                                                |  | 23         
|                              |  |                                                                                                 
|Item 1A.                      |  | Risk Factors                                                                                     |  | 23         
|                              |  |                                                                                                 
|Item 2.                       |  | Unregistered Sales of Equity Securities and Proceeds                                             |  | 23         
|                              |  |                                                                                                 
|Item 3.                       |  | Default Upon Senior Securities                                                                   |  | 23         
|                              |  |                                                                                                 
|Item 4.                       |  | Submissions of Matters to a Vote of Security Holders                                             |  | 24         
|                              |  |                                                                                                 
|Item 5.                       |  | Other Information                                                                                |  | 24         
|                              |  |                                                                                                 
|Item 6.                       |  | Exhibits                                                                                         |  | 24         
|                              | 
|SIGNATURES                    |  | 25                                                                                              



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##### Table of Contents

Killbuck Bancshares, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



|                                                                         |  |               |             |   |                   |   |             |  
|------------------------------------------------------------------------ |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                         |  | June 30, 2006 |             |   | December 31, 2005 |  
|ASSETS                                                                   |  |               |             |   |                   |   |             |  
|Cash and cash equivalents:                                               |  |               |             |   |                   |   |             |  
|Cash and amounts due from depository institutions                        |  | $             | 10,437,621  |   |                   | $ | 15,031,294  |  
|Federal funds sold                                                       |  |               | 16,100,000  |   |                   |   | 18,300,000  |  
|                                                                         |  |               |             |   |                   |   |             |  
|Total cash and cash equivalents                                          |  |               | 26,537,621  |   |                   |   | 33,331,294  |  
|                                                                         |  |               |             |   |                   |   |             |  
|Investment securities:                                                   |  |               |             |   |                   |   |             |  
|Securities available for sale                                            |  |               | 23,640,001  |   |                   |   | 14,307,200  |  
|Securities held to maturity (fair value of $33,352,647 and $31,696,907)  |  |               | 32,897,122  |   |                   |   | 30,770,829  |  
|                                                                         |  |               |             |   |                   |   |             |  
|Total investment securities                                              |  |               | 56,537,123  |   |                   |   | 45,078,029  |  
|                                                                         |  |               |             |   |                   |   |             |  
|Loans (net of allowance for loan losses of $2,393,833 and $2,313,312)    |  |               | 196,592,060 |   |                   |   | 206,241,946 |  
|Loans held for sale                                                      |  |               | 255,500     |   |                   |   | 94,600      |  
|Premises and equipment, net                                              |  |               | 5,438,807   |   |                   |   | 5,834,516   |  
|Accrued interest receivable                                              |  |               | 1,335,756   |   |                   |   | 1,145,875   |  
|Goodwill, net                                                            |  |               | 1,329,249   |   |                   |   | 1,329,249   |  
|Other assets                                                             |  |               | 5,398,411   |   |                   |   | 4,994,451   |  
|                                                                         |  |               |             |   |                   |   |             |  
|Total assets                                                             |  | $             | 293,424,527 |   |                   | $ | 298,049,960 |  
|                                                                         |  |               |             |   |                   |   |             |  
|LIABILITIES                                                              |  |               |             |   |                   |   |             |  
|Deposits:                                                                |  |               |             |   |                   |   |             |  
|Noninterest bearing demand                                               |  | $             | 44,552,272  |   |                   | $ | 51,130,983  |  
|Interest bearing demand                                                  |  |               | 30,526,826  |   |                   |   | 32,244,405  |  
|Money market                                                             |  |               | 16,659,858  |   |                   |   | 14,716,407  |  
|Savings                                                                  |  |               | 39,491,067  |   |                   |   | 42,347,138  |  
|Time                                                                     |  |               | 113,301,255 |   |                   |   | 109,910,217 |  
|                                                                         |  |               |             |   |                   |   |             |  
|Total deposits                                                           |  |               | 244,531,278 |   |                   |   | 250,349,150 |  
|Federal Home Loan Bank advances                                          |  |               | 5,583,341   |   |                   |   | 5,989,051   |  
|Short-term borrowings                                                    |  |               | 4,070,000   |   |                   |   | 3,610,000   |  
|Accrued interest and other liabilities                                   |  |               | 1,191,495   |   |                   |   | 1,052,456   |  
|                                                                         |  |               |             |   |                   |   |             |  
|Total liabilities                                                        |  |               | 255,376,114 |   |                   |   | 261,000,657 |  
|                                                                         |  |               |             |   |                   |   |             |  
|SHAREHOLDERS EQUITY                                                     |  |               |             |   |                   |   |             |  
|Common stock  No par value: 1,000,000 shares authorized, 718,431 issued |  |               | 8,846,670   |   |                   |   | 8,846,670   |  
|Retained earnings                                                        |  |               | 36,071,182  |   |                   |   | 34,332,104  |  
|Accumulated other comprehensive loss                                     |  |               | (228,302    | ) |                   |   | (64,736     | )
|Treasury stock, at cost (76,206 and 70,671 shares)                       |  |               | (6,641,137  | ) |                   |   | (6,064,735  | )
|                                                                         |  |               |             |   |                   |   |             |  
|Total shareholders equity                                               |  |               | 38,048,413  |   |                   |   | 37,049,303  |  
|                                                                         |  |               |             |   |                   |   |             |  
|Total liabilities and shareholders equity                               |  | $             | 293,424,527 |   |                   | $ | 298,049,960 |  
|                                                                         |  |               |             |   |                   |   |             |  

See accompanying notes to the unaudited consolidated financial statements.



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##### Table of Contents

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)



|                                                    |  |                           |           |      |   |          
|--------------------------------------------------- |  | ------------------------- | --------- | ---- | - | ---------
|                                                    |  | Six Months Ended June 30,
|                                                    |  | 2006                      |           | 2005
|INTEREST INCOME                                     |  |                           |           |      |   |          
|Interest and fees on loans                          |  | $                         | 8,044,655 |      | $ | 6,687,123
|Federal funds sold                                  |  |                           | 485,543   |      |   | 89,160   
|Investment securities:                              |  |                           |           |      |   |          
|Taxable                                             |  |                           | 440,279   |      |   | 231,361  
|Exempt from federal income tax                      |  |                           | 694,161   |      |   | 778,747  
|                                                    |  |                           |           |      |   |          
|Total interest income                               |  |                           | 9,664,638 |      |   | 7,786,391
|                                                    |  |                           |           |      |   |          
|INTEREST EXPENSE                                    |  |                           |           |      |   |          
|Deposits                                            |  |                           | 2,459,358 |      |   | 1,698,071
|Federal Home Loan Bank advances                     |  |                           | 138,482   |      |   | 152,017  
|Short term borrowings                               |  |                           | 49,164    |      |   | 13,155   
|                                                    |  |                           |           |      |   |          
|Total interest expense                              |  |                           | 2,647,004 |      |   | 1,863,243
|                                                    |  |                           |           |      |   |          
|NET INTEREST INCOME                                 |  |                           | 7,017,634 |      |   | 5,923,148
|Provision for loan losses                           |  |                           | 120,000   |      |   | 150,000  
|                                                    |  |                           |           |      |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                           | 6,897,634 |      |   | 5,773,148
|                                                    |  |                           |           |      |   |          
|NON INTEREST INCOME                                 |  |                           |           |      |   |          
|Service charges on deposit accounts                 |  |                           | 448,168   |      |   | 411,200  
|Gain on sale of loans, net                          |  |                           | 19,992    |      |   | 37,718   
|BOLI                                                |  |                           | 70,629    |      |   | 74,538   
|Other income                                        |  |                           | 88,290    |      |   | 148,124  
|                                                    |  |                           |           |      |   |          
|Total non interest income                           |  |                           | 627,079   |      |   | 671,580  
|                                                    |  |                           |           |      |   |          
|NON INTEREST EXPENSE                                |  |                           |           |      |   |          
|Salaries and employee benefits                      |  |                           | 2,317,805 |      |   | 2,111,910
|Occupancy and equipment expense                     |  |                           | 476,526   |      |   | 485,115  
|Professional fees                                   |  |                           | 176,210   |      |   | 177,134  
|Franchise tax                                       |  |                           | 226,183   |      |   | 220,645  
|Other expenses                                      |  |                           | 836,337   |      |   | 793,357  
|                                                    |  |                           |           |      |   |          
|Total non interest expense                          |  |                           | 4,033,061 |      |   | 3,788,161
|                                                    |  |                           |           |      |   |          
|INCOME BEFORE INCOME TAXES                          |  |                           | 3,491,652 |      |   | 2,656,567
|Income taxes                                        |  |                           | 981,904   |      |   | 673,406  
|                                                    |  |                           |           |      |   |          
|NET INCOME                                          |  | $                         | 2,509,748 |      | $ | 1,983,161
|                                                    |  |                           |           |      |   |          
|Earning per common share                            |  | $                         | 3.90      |      | $ | 3.02     
|                                                    |  |                           |           |      |   |          
|Dividend per share                                  |  | $                         | 1.20      |      | $ | 1.05     
|                                                    |  |                           |           |      |   |          
|Weighted Average shares outstanding                 |  |                           | 644,038   |      |   | 656,724  
|                                                    |  |                           |           |      |   |          

See accompanying notes to the unaudited consolidated financial statements.



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##### Table of Contents

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)



|                                                    |  |                             |           |      |   |          
|--------------------------------------------------- |  | --------------------------- | --------- | ---- | - | ---------
|                                                    |  | Three Months Ended June 30,
|                                                    |  | 2006                        |           | 2005
|INTEREST INCOME                                     |  |                             |           |      |   |          
|Interest and fees on loans                          |  | $                           | 4,072,393 |      | $ | 3,464,604
|Federal funds sold                                  |  |                             | 266,277   |      |   | 58,936   
|Investment securities:                              |  |                             |           |      |   |          
|Taxable                                             |  |                             | 260,949   |      |   | 109,604  
|Exempt from federal income tax                      |  |                             | 353,868   |      |   | 385,126  
|                                                    |  |                             |           |      |   |          
|Total interest income                               |  |                             | 4,953,487 |      |   | 4,018,270
|                                                    |  |                             |           |      |   |          
|INTEREST EXPENSE                                    |  |                             |           |      |   |          
|Deposits                                            |  |                             | 1,292,453 |      |   | 913,351  
|Federal Home Loan Bank advances                     |  |                             | 68,211    |      |   | 76,028   
|Short term borrowings                               |  |                             | 27,839    |      |   | 8,563    
|                                                    |  |                             |           |      |   |          
|Total interest expense                              |  |                             | 1,388,503 |      |   | 997,942  
|                                                    |  |                             |           |      |   |          
|NET INTEREST INCOME                                 |  |                             | 3,564,984 |      |   | 3,020,328
|Provision for loan losses                           |  |                             | 60,000    |      |   | 75,000   
|                                                    |  |                             |           |      |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                             | 3,504,984 |      |   | 2,945,328
|                                                    |  |                             |           |      |   |          
|NON INTEREST INCOME                                 |  |                             |           |      |   |          
|Service charges on deposit accounts                 |  |                             | 234,670   |      |   | 222,976  
|Gain on sale of loans, net                          |  |                             | 8,506     |      |   | 17,968   
|BOLI                                                |  |                             | 35,284    |      |   | 39,081   
|Other income                                        |  |                             | 38,704    |      |   | 80,662   
|                                                    |  |                             |           |      |   |          
|Total non interest income                           |  |                             | 317,164   |      |   | 360,687  
|                                                    |  |                             |           |      |   |          
|NON INTEREST EXPENSE                                |  |                             |           |      |   |          
|Salaries and employee benefits                      |  |                             | 1,082,403 |      |   | 941,155  
|Occupancy and equipment expense                     |  |                             | 229,433   |      |   | 226,831  
|Professional fees                                   |  |                             | 88,262    |      |   | 69,982   
|Franchise tax                                       |  |                             | 115,183   |      |   | 109,645  
|Other expenses                                      |  |                             | 399,018   |      |   | 395,829  
|                                                    |  |                             |           |      |   |          
|Total non interest expense                          |  |                             | 1,914,299 |      |   | 1,743,442
|                                                    |  |                             |           |      |   |          
|INCOME BEFORE INCOME TAXES                          |  |                             | 1,907,849 |      |   | 1,562,573
|Income taxes                                        |  |                             | 559,948   |      |   | 424,561  
|                                                    |  |                             |           |      |   |          
|NET INCOME                                          |  | $                           | 1,347,901 |      | $ | 1,138,012
|                                                    |  |                             |           |      |   |          
|Earning per common share                            |  | $                           | 2.10      |      | $ | 1.73     
|                                                    |  |                             |           |      |   |          
|Dividend per share                                  |  | $                           | 1.20      |      | $ | 1.05     
|                                                    |  |                             |           |      |   |          
|Weighted Average shares outstanding                 |  |                             | 642,346   |      |   | 656,402  
|                                                    |  |                             |           |      |   |          

See accompanying notes to the unaudited consolidated financial statements.



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##### Table of Contents

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2006



|                                                                 |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  |   |           |  
|---------------------------------------------------------------- |  | ------------ | --------- | ----------------- | - | ---------- | -------------------------------------- |  | - | -------------- | - |  | -------------------------- | ---------- | - | --------------------------- | - | ---------- | - |  | - | --------- | -
|                                                                 |  | Common Stock |           | Retained Earnings |   |            | Accumulated Other Comprehensive Income |  |   | Treasury Stock |   |  | Total Shareholders Equity |            |   | Comprehensive Income (Loss) |  
|Balance, December 31, 2005                                       |  | $            | 8,846,670 |                   | $ | 34,332,104 |                                        |  | $ | (64,736        | ) |  | $                          | (6,064,735 | ) |                             | $ | 37,049,303 |   |  |   |           |  
|                                                                 |  |              |           |                   |   |           
|Net income                                                       |  |              |           |                   |   | 2,509,748  |                                        |  |   |                |   |  |                            |            |   |                             |   | 2,509,748  |   |  | $ | 2,509,748 |  
|Purchase of Treasury stock, at cost (5,535 shares)               |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            | (576,402   | ) |                             |   | (576,402   | ) |  |   |           |  
|Other comprehensive loss:                                        |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  |   |           |  
|Net unrealized loss on securities, net of tax benefit of $84,261 |  |              |           |                   |   |            |                                        |  |   | (163,566       | ) |  |                            |            |   |                             |   | (163,566   | ) |  |   | (163,566  | )
|                                                                 |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  |   |           |  
|Comprehensive income                                             |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  | $ | 2,346,182 |  
|                                                                 |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  |   |           |  
|Cash dividends paid ($1.20 per share)                            |  |              |           |                   |   | (770,670   | )                                      |  |   |                |   |  |                            |            |   |                             |   | (770,670   | ) |  |   |           |  
|                                                                 |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  |   |           |  
|Balance, June 30, 2006                                           |  | $            | 8,846,670 |                   | $ | 36,071,182 |                                        |  | $ | (228,302       | ) |  | $                          | (6,641,137 | ) |                             | $ | 38,048,413 |   |  |   |           |  
|                                                                 |  |              |           |                   |   |            |                                        |  |   |                |   |  |                            |            |   |                             |   |            |   |  |   |           |  

See accompanying notes to the unaudited consolidated financial statements.



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##### Table of Contents

Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)



|                                                                                  |  |                           |            |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                  |  | Six Months Ended June 30, |           
|                                                                                  |  | 2006                      |            |   | 2005 |  
|OPERATING ACTIVITIES                                                              |  |                           |            |   |      |   |             |  
|Net income                                                                        |  | $                         | 2,509,748  |   |      | $ | 1,983,161   |  
|Adjustments to reconcile net income to net cash provided by Operating activities: |  |                           |            |   |      |   |             |  
|Provision for loan losses                                                         |  |                           | 120,000    |   |      |   | 150,000     |  
|Gain on sale of loans                                                             |  |                           | (19,992    | ) |      |   | (37,718     | )
|Provision for depreciation and amortization                                       |  |                           | 160,622    |   |      |   | 181,774     |  
|Origination of loans held for sale                                                |  |                           | (5,022,735 | ) |      |   | (6,791,679  | )
|Proceeds from the sale of loans                                                   |  |                           | 4,881,827  |   |      |   | 6,570,297   |  
|Federal Home Loan Bank stock dividend                                             |  |                           | (35,500    | ) |      |   | (25,700     | )
|Net change in:                                                                    |  |                           |            |   |      |   |             |  
|Accrued interest and other assets                                                 |  |                           | (484,537   | ) |      |   | (375,213    | )
|Accrued expenses and other liabilities                                            |  |                           | 149,496    |   |      |   | 196,645     |  
|                                                                                  |  |                           |            |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                           | 2,258,929  |   |      |   | 1,851,567   |  
|                                                                                  |  |                           |            |   |      |   |             |  
|INVESTING ACTIVITIES                                                              |  |                           |            |   |      |   |             |  
|Investment securities available for sale:                                         |  |                           |            |   |      |   |             |  
|Proceeds from maturities and repayments                                           |  |                           | 354,508    |   |      |   | 3,363,829   |  
|Purchases                                                                         |  |                           | (9,924,470 | ) |      |   | (1,998,923  | )
|Investment securities held to maturity:                                           |  |                           |            |   |      |   |             |  
|Proceeds from maturities and repayments                                           |  |                           |           |   |      |   | 949,704     |  
|Purchases                                                                         |  |                           | (2,155,554 | ) |      |   | (200,872    | )
|Net decrease (increase) in loans                                                  |  |                           | 9,529,886  |   |      |   | (877,275    | )
|Net Disposal of foreclosed real estate                                            |  |                           | 620,000    |   |      |   |            |  
|Net Purchase of premises and equipment                                            |  |                           | (366,318   | ) |      |   | (488,146    | )
|                                                                                  |  |                           |            |   |      |   |             |  
|Net cash (used in) provided by investing activities                               |  |                           | (1,941,948 | ) |      |   | 748,317     |  
|                                                                                  |  |                           |            |   |      |   |             |  
|FINANCING ACTIVITIES                                                              |  |                           |            |   |      |   |             |  
|Net decrease in demand, money market and savings deposits                         |  |                           | (9,208,910 | ) |      |   | (9,125,920  | )
|Net increase in time deposits                                                     |  |                           | 3,391,038  |   |      |   | 2,109,304   |  
|Repayments of Federal Home Loan Bank advances                                     |  |                           | (405,710   | ) |      |   | (2,293,177  | )
|Net increase (decrease) in short term borrowings                                  |  |                           | 460,000    |   |      |   | (55,000     | )
|Purchase of Treasury stock                                                        |  |                           | (576,402   | ) |      |   | (137,309    | )
|Dividends paid                                                                    |  |                           | (770,670   | ) |      |   | (689,249    | )
|                                                                                  |  |                           |            |   |      |   |             |  
|Net cash used in financing activities                                             |  |                           | (7,110,654 | ) |      |   | (10,191,351 | )
|                                                                                  |  |                           |            |   |      |   |             |  
|Net decrease in cash and cash equivalents                                         |  |                           | (6,793,673 | ) |      |   | (7,591,467  | )
|Cash and cash equivalents at beginning of period                                  |  |                           | 33,331,294 |   |      |   | 21,663,199  |  
|                                                                                  |  |                           |            |   |      |   |             |  
|Cash and cash equivalents at end of period                                        |  | $                         | 26,537,621 |   |      | $ | 14,071,732  |  
|                                                                                  |  |                           |            |   |      |   |             |  
|Supplemental Disclosures of Cash Flows Information                                |  |                           |            |   |      |   |             |  
|Cash Paid During the Period For:                                                  |  |                           |            |   |      |   |             |  
|Interest on deposits and borrowings                                               |  | $                         | 2,642,093  |   |      | $ | 1,838,645   |  
|                                                                                  |  |                           |            |   |      |   |             |  
|Income taxes                                                                      |  | $                         | 681,287    |   |      | $ | 383,912     |  
|                                                                                  |  |                           |            |   |      |   |             |  

See accompanying notes to the unaudited consolidated financial statements.



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##### Table of Contents

Killbuck Bancshares, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1  BASIS OF PRESENTATION

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

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

These statements should be read in conjunction with the consolidated statements of and for the year ended December 31, 2005 and related notes which are included on
the Form 10-K (file no. 000-24147)

NOTE 2  EARNINGS PER SHARE

The Company currently maintains a simple capital structure; therefore, there are no dilutive effects on earnings per share. As such, earnings per share are calculated using the weighted number of shares for the
period.

NOTE 3  COMPREHENSIVE INCOME

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



|                                         |  |                                  |           |   |                                  |   |           |  
|---------------------------------------- |  | -------------------------------- | --------- | - | -------------------------------- | - | --------- | -
|                                         |  | Six Months Ended June 30, 2006   |           |   | Six Months Ended June 30, 2005   |  
|Net income                               |  | $                                | 2,509,748 |   |                                  | $ | 1,983,161 |  
|Other comprehensive income:              |  |                                  |           |   |                                  |   |           |  
|Net unrealized loss on securities        |  |                                  | (247,827  | ) |                                  |   | (66,556   | )
|Tax effect                               |  |                                  | 84,261    |   |                                  |   | 22,629    |  
|                                         |  |                                  |           |   |                                  |   |           |  
|Total comprehensive income               |  | $                                | 2,346,182 |   |                                  | $ | 1,939,234 |  
|                                         |  |                                  |           |   |                                  |   |           |  
|                                         |  |                                 
|                                         |  | Three Months Ended June 30,
2006 |           |   | Three Months Ended June 30,
2005 |  
|Net income                               |  | $                                | 1,347,901 |   |                                  | $ | 1,138,012 |  
|Other comprehensive income:              |  |                                  |           |   |                                  |   |           |  
|Net unrealized (loss) gain on securities |  |                                  | (199,987  | ) |                                  |   | 13,308    |  
|Tax effect                               |  |                                  | 67,996    |   |                                  |   | (4,524    | )
|                                         |  |                                  |           |   |                                  |   |           |  
|Total comprehensive income               |  | $                                | 1,215,910 |   |                                  | $ | 1,146,796 |  
|                                         |  |                                  |           |   |                                  |   |           |  



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##### Table of Contents

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting (FAS) No. 155, Accounting for Certain Hybrid Instruments, as an amendment of
FASB Statements No. 133 and 140. FAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account
for the whole instrument on a fair value basis. This statement is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The adoption of this
standard is not expected to have a material effect on the Companys results of operations or financial position.

In March 2006, the FASB issued FAS
No. 156, Accounting for Servicing of Financial Assets. This Statement, which is an amendment to FAS No. 140, will simplify the accounting for servicing assets and liabilities, such as those common with mortgage securitization
activities. Specifically, FAS No. 156 addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting. FAS No. 156
also clarifies when an obligation to service financial assets should be separately recognized as a servicing asset or a servicing liability, requires that a separately recognized servicing asset or servicing liability be initially measured at fair
value, if practicable, and permits an entity with a separately recognized servicing asset or servicing liability to choose either of the amortization or fair value methods for subsequent measurement. The provisions of FAS No. 156 are effective
as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Companys results of operations or financial position.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of FAS
No. 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN No. 48 requires expanded
disclosure with respect to the uncertainty in income taxes and is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact the adoption of the standard will have on the Companys results
of operations.



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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

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

Critical Accounting
Policies

The Companys accounting policies are integral to understanding the results reported. The accounting policies are described in detail in
Note 1 of the consolidated financial statements filed with the Commission as part of the Companys annual report on Form 10-K for its fiscal year ended December 31, 2005. 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 the consolidated financial statements filed with the Commission as part of the Companys annual report on Form 10-K for its fiscal year
ended December 31, 2005.

Goodwill and Other Intangible Assets - As discussed in Note 7 of the consolidated financial statements, filed with
the Commission as part of the Companys annual report on Form 10-K for its fiscal year ended December 31, 2005, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash
flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.

Deferred Tax Assets - We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income
should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. Our deferred tax assets are described further in Note
14 of the consolidated financial statements filed with the Commission as part of the Companys annual report on Form 10-K for its fiscal year ended December 31, 2005.



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##### Table of Contents

Financial Condition

Total assets at June 30, 2006 were $293,425,000 compared to $298,050,000 at December 31, 2005.

Cash and cash equivalents decreased by $6,794,000 or 20.4% from December 31, 2005, to June 30, 2006, with federal funds sold decreasing $2,200,000. The
decrease was used to fund the decrease in the Banks total deposits.

Investment securities available for sale increased by $9,333,000 or 65.2% from
December 31, 2005, due to net purchases. Investments held to maturity increased $2,126,000 or 6.9% due to net purchases.

Net loans decreased by
$9,650,000 or 4.7% from December 31, 2005 to June 30, 2006. A decrease of $8,187,000 occurred in the real estate loan category, which is attributable primarily to residential and farm lending activity. Management believes the higher
interest rate environment has slowed this sector of the market. Commercial and other loan balances decreased by $511,000 due to a very competitive interest rate environment. The Consumer loans decreased by $952,000.

Total deposits at June 30, 2006 were $244,531,000 compared to $250,349,000 at December 31, 2005. Time deposits increased $3,391,000, demand accounts decreased
$8,296,000 and money market and savings accounts decreased $913,000. Management attributes these changes to the increase in interest rates. Management believes the demand accounts decreases are attributable to several different reasons including
normal fluctuations due to customer usage, and the disintermediation into other financial markets.

Federal Home Loan Bank advances decreased $406,000 due
to maturities and scheduled repayments, and short-term borrowings increased $460,000 at June 30, 2006 from December 31, 2005.

Shareholders
Equity increased by $999,000 or 2.7%, which was mainly due to earnings of $2,510,000 for the first six months of 2006 decreased by a $164,000 unrealized loss on securities included in other comprehensive income, dividends paid totaling $771,000, and
by the purchase of Treasury stock for $576,000. Treasury stock purchases are monitored against the Companys Strategic Plan and the goals set forth in the plan. The Treasury stock purchases have not exceeded the Strategic Plans guidelines
for the first six months of 2006. Management monitors risk-based capital and leveraged capital ratios in order to assess compliance of the regulatory guidelines. At June 30, 2006, the total capital ratio was 18.94%; the Tier I capital ratio was
17.79%, and the leverage ratio was 12.46%, compared to regulatory capital requirements of 8.00%, 4.00% and 4.00% respectively. These ratios are well in excess of regulatory capital requirements.



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##### Table of Contents

RESULTS OF OPERATIONS

Comparison of the Six Months Ended June 30, 2006 and 2005

Net income for the six-month period ended
June 30, 2006, was $2,510,000, an increase of $527,000 or 26.6% from the $1,983,000 reported at June 30, 2005.

Total interest income of
approximately $9,665,000 for the six-month period ended June 30, 2006, compares to $7,786,000 for the same period in 2005, an increase of $1,879,000 or 24.1%. The increase in total interest income is primarily attributable to loans. Interest
and fees on loans increased $1,358,000 or 20.3% for the six-month period ended June 30, 2006 compared to the same period for 2005. The increase in interest and fees on loans is due to an increase in the average yield on the underlying principle
balances. See Average Balance Sheet for the six-month periods ended June 30, 2006 and 2005. Average loan balances were $206,150,000 for the first six months of 2006 compared to $217,508,000 for the first six months of 2005 and the
yield on loans increased to 7.80% for the first six months of 2006 compared to 6.15% for the first six months of 2005. Investment income increased $125,000 or 12.3% for the six-month period ended June 30, 2006 compared to the same period for
2005. The increase in investment income is primarily attributable to an increase in volume. Average investment balances were $50,302,000 compared to $46,613,000 and the yields were 4.5% compared to 4.3% for the first six months of 2006 and 2005
respectively.

Total interest expense of $2,647,000 for the six-month period ending June 30, 2006 represents an increase of $784,000 from the
$1,863,000 reported for the same six-month period in 2005. The increase in interest expense on deposits of $761,000 is due mainly to the increases in the average rate paid on the underlying principle balances of the interest bearing liabilities,
specifically the Time deposits. The cost of Time deposits was 3.58% compared to 2.62% for this six-month period of 2006 and 2005, respectively. The cost on interest bearing deposits was 2.4%, compared to 1.7% for the six-month periods of 2006 and
2005 respectively. Average interest-bearing deposits were $202,003,000 for the first six months of 2006 compared to $197,979,000 for the first six months of 2005. See Average Balance Sheet for the six-month periods ended June 30,
2006 and 2005.

Net interest income of $7,018,000 for the six months ended June 30, 2006, compares to $5,923,000 for the same six-month period in
2005, an increase of $1,095,000 or 18.5%.

Total non-interest income for the six-month period ended June 30, 2006, of $627,000 compares to $672,000
for the same six-month period in 2005, a decrease of $45,000 or 6.7%. Gains on sale of loans decreased $18,000. $8,000 of the increase of $37,000 in service charges on deposit accounts was attributable to ATM surcharges due to additional
non-customer usage, and $28,000 was due to an increase May 1stin the Non-sufficient funds fee. Other income
decreased $60,000 due primarily to the decrease of $36,000 in alternative investment income. BOLI income decreased $4,000. The Bank-Owned Life Insurance (BOLI) was purchased in December 2005. The Company purchased life insurance policies on certain
key employees and the BOLI is recorded at its cash surrender value or the amount that can be realized. Other income decreased $10,000 due to the one-time fees of approximately $18,000 from changing our Check Vendor in 2005. Miscellaneous service
charges decreased approximately $14,000.

Total non-interest expense of $4,033,000 for the six months ended June 30, 2006, compares to $3,788,000 for
the same six-month period in 2005. This represents an increase of $245,000 or 6.5%. Salary and employee benefits increased approximately $206,000. Approximately $71,000 of the $206,000 increase was due to additional medical group insurance costs.
The remaining expense was due to normal increases in salaries and employee benefits, and additional branch personnel hired in 2006. Approximately $16,000 was attributable to legal expenses due to increased non-performing loans. The changes in the
remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.



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##### Table of Contents

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2006 and 2005

Net income for the three-month period ended
June 30, 2006, was $1,348,000, an increase of $210,000 or 18.5% from the $1,138,000 reported at June 30, 2005.

Total interest income of
approximately $4,953,000 for the three-month period ended June 30, 2006, compares to $4,018,000 for the same period in 2005, an increase of $935,000 or 23.3%. The increase in total interest income is primarily attributable to an increase in the
loan category. Interest and fees on loans increased $608,000 or 17.5% for the three-month period ended June 30, 2006 compared to the same period for 2005. The increase in interest and fees on loans is due to an increase in the average yield on
the underlying principle balances. Average loan balances were $203,088,000 compared to $217,912,000 and the yield was 8.02% compared to 6.36% for this three-month period of 2006 and 2005 respectively. See Average Balance Sheet for the
three-month periods ended June 30, 2006 and 2005. The increase in interest on investment securities of $121,000 was primarily attributable to an increase in the average balances outstanding of $53,619,000 for 2006 compared to $45,444,000 for
2005 and the yield was 4.6% compared to 4.4% for this three-month period of 2006 and 2005 respectively. See Average Balance Sheet for the three-month periods ended June 30, 2006 and 2005.

Total interest expense of $1,389,000 for the three-month period ending June 30, 2006, represents an increase of $391,000 from the $998,000 reported for the same
three-month period in 2005. The increase in interest expense on deposits of $379,000 is due mainly to increases in the average rate paid on the underlying principle balances of the interest bearing liabilities specifically the Time deposits and an
increase in the average balances outstanding of the Time deposits. The cost of Time deposits was 3.72% compared to 2.78% for this three-month period of 2006 and 2005, respectively and the average time deposits were $ 112,010,000 for this three-month
period of 2006 compared to $105,916,000 for the same three months of 2005. The cost of interest bearing deposits was 2.6% compared to 1.8% for this three-month period of 2006 and 2005 respectively. Average interest-bearing deposits were $202,455,000
for this three-month period of 2006 compared to $199,128,000 for the same three months of 2005. See Average Balance Sheet for the three-month periods ended June 30, 2006 and 2005.

Net interest income of $3,565,000 for the three months ended June 30, 2006, compares to $3,020,000 for the same three-month period in 2005, an increase of $545,000
or 18.0%.

Total non-interest income for the three-month period ended June 30, 2006, of $317,000 compares to $361,000 for the same three-month period
in 2005, a decrease of $44,000 or 12.2%. Gains on sale of loans decreased $9,000 due to decreased residential loan activity caused by rising fixed loan rates. The service fee income on deposits increased $12,000 due to an increase of $4,000 in ATM
surcharges from additional non-customer usage and an increase of $9,000 in the Non-sufficient funds (NSF) fees. Other income decreased $42,000 due primarily to the decrease of $43,000 in alternative investment income. BOLI income decreased $4,000.
The Bank-Owned Life Insurance (BOLI) was purchased in December 2005. The Company purchased life insurance policies on certain key employees and the BOLI is recorded at its cash surrender value or the amount that can be realized.

Total non-interest expense of $1,914,000 for the three months ended June 30, 2006, compares to $1,743,000 for the same three-month period in 2005. This represents
an increase of $171,000 or 9.8%. Salary and employee benefits increased $141,000. Approximately $71,000 of the $141,000 increase was due to additional medical group insurance costs. The remaining expense was due to normal recurring employee cost
increase for salary and employee benefits, and additional branch personnel hired in 2006. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.



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##### Table of Contents

Liquidity

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

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

Cash and amounts due from depository institutions and federal funds sold totaled $26,538,000 at June 30, 2006. These assets provide the
primary source of liquidity for the Company. In addition, management has designated a portion of the investment portfolio, $23,640,000 as available for sale and has an available unused line of credit of $36,460,000 with the Federal Home Loan Bank of
Cincinnati to provide additional sources of liquidity at June 30, 2006. As of June 30, 2006, the Company had commitments to fund loans of approximately $2,064,000 and unused lines of credit totaling $32,593,000.

Cash was provided during the six month period ended June 30, 2006, mainly from operating activities of $2.3 million, the net payment of loans of $9.5 million, and
the maturities and repayments of investment securities of $.4 million. In addition, cash was provided by the net disposal of foreclosed real estate of $.6 million, and a net increase of $.1 million in Federal Home Loan Bank advances and short-term
borrowings. Cash was used during the six month period ended June 30, 2006, mainly for the purchase of investment securities of $12.1 million, and the net decrease in deposits of $5.8 million. In addition, $.4 million was used to purchase
equipment, $.6 million was used to purchase Treasury Stock, and $.8 million was used to pay dividends to shareholders. Cash and cash equivalents totaled $26.5 million at June 30, 2006, a decrease of $6.8 million from $33.3 million at
December 31, 2005.

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



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##### Table of Contents

Risk Elements

The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans and repossessed assets at June 30,
2006, and December 31, 2005. A loan is classified as nonaccrual when, in the opinion of management, there are doubts about collectibility of interest and principal. At the time the accrual of interest is discontinued, future income is
recognized only when cash is received. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as of result of the deterioration of the borrower.



|                                                  |  |                        |      |   |                   |   |       |  
|------------------------------------------------- |  | ---------------------- | ---- | - | ----------------- | - | ----- | -
|                                                  |  | June 30, 2006          |      |   | December 31, 2005 |  
|                                                  |  | (dollars in thousands) |     
|Loans on nonaccrual basis                         |  | $                      | 661  |   |                   | $ | 632   |  
|Loans past due 90 days or more                    |  |                        | 15   |   |                   |   |      |  
|Renegotiated loans                                |  |                        |     |   |                   |   |      |  
|                                                  |  |                        |      |   |                   |   |       |  
|Total nonperforming loans                         |  | $                      | 676  |   |                   | $ | 632   |  
|                                                  |  |                       
|Other real estate                                 |  |                        | 80   |   |                   |   | 700   |  
|Repossessed assets                                |  |                        |     |   |                   |   |      |  
|                                                  |  |                        |      |   |                   |   |       |  
|Total nonperforming assets                        |  | $                      | 756  |   |                   | $ | 1,332 |  
|                                                  |  |                       
|Nonperforming loans as a percent of total loans   |  |                        | 0.34 | % |                   |   | 0.30  | %
|                                                  |  |                       
|Nonperforming loans as a percent of total assets  |  |                        | 0.23 | % |                   |   | 0.21  | %
|                                                  |  |                       
|Nonperforming assets as a percent of total assets |  |                        | 0.26 | % |                   |   | 0.45  | %

Management monitors impaired loans on a continual basis. As of June 2006, impaired loans had no material effect on
the Companys financial position or results from operations.

The allowance for loan losses at June 30, 2006, totaled $2,394,000 or 1.20% of
total loans as compared to $2,313,000 or 1.11% at December 31, 2005. Provisions for loan losses were $120,000 for the six months ended June 30, 2006 and $150,000 for the six months ended June 30, 2005.

The level of funding for the provision is a reflection of the overall loan portfolio. Nonperforming loans consist of approximately $215,000 in commercial real estate,
$23,000 in consumer loans, and $438,000 in one to four family residential mortgages. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in managements opinion.

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



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##### Table of Contents

AVERAGE BALANCE SHEET

Average Balance Sheet for the Six-Month Period Ended June 30

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



|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|------------------------------------------ |  | --------------- | ----------- | - | -------- | - | ----------- |  | ---- | --------------- |  | - | ----------- | - | ----------- | - | --------- |  | ---- | -
|                                           |  | Period Ended    |            
|                                           |  | 2006            |             |   | 2005     |  
|                                           |  | Average Balance |             |   | Interest |   | Yield/ Rate |  |      | Average Balance |  |   | Interest    |   | Yield/ Rate |  
|Assets                                     |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest Earnings Assets:                  |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Loans (1)(2)(3)                            |  | $               | 206,149,695 |   |          | $ | 8,044,655   |  | 7.80 | %               |  | $ | 217,508,023 |   |             | $ | 6,687,123 |  | 6.15 | %
|Securities-taxable (4)                     |  |                 | 17,052,668  |   |          |   | 396,702     |  | 4.65 | %               |  |   | 9,724,912   |   |             |   | 197,600   |  | 4.06 | %
|Securities-nontaxable (4)                  |  |                 | 31,635,427  |   |          |   | 694,161     |  | 4.39 | %               |  |   | 35,336,405  |   |             |   | 778,747   |  | 4.41 | %
|Securities-Equity (4,5)                    |  |                 | 1,614,188   |   |          |   | 43,577      |  | 5.40 | %               |  |   | 1,552,146   |   |             |   | 33,761    |  | 4.35 | %
|Federal funds sold                         |  |                 | 20,767,431  |   |          |   | 485,543     |  | 4.68 | %               |  |   | 6,441,979   |   |             |   | 89,160    |  | 2.77 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total interest earnings assets             |  |                 | 277,219,409 |   |          |   | 9,664,638   |  | 6.97 | %               |  |   | 270,563,465 |   |             |   | 7,786,391 |  | 5.76 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Noninterest earning assets:                |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Cash and due from other institutions       |  |                 | 9,951,343   |   |          |   |             |  |      |                 |  |   | 9,518,206   |   |             |   |           |  |      |  
|Premises and equipment, net                |  |                 | 5,176,489   |   |          |   |             |  |      |                 |  |   | 5,167,261   |   |             |   |           |  |      |  
|Accrued interest                           |  |                 | 1,104,862   |   |          |   |             |  |      |                 |  |   | 826,223     |   |             |   |           |  |      |  
|Other assets                               |  |                 | 5,687,737   |   |          |   |             |  |      |                 |  |   | 5,427,183   |   |             |   |           |  |      |  
|Less allowance for loan losses             |  |                 | (2,378,605  | ) |          |   |             |  |      |                 |  |   | (2,573,254  | ) |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total noninterest earnings assets          |  |                 | 19,541,826  |   |          |   |             |  |      |                 |  |   | 18,365,619  |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total Assets                               |  | $               | 296,761,235 |   |          |   |             |  |      |                 |  | $ | 288,929,084 |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Liabilities and Shareholders Equity       |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest bearing liabilities:              |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest bearing demand                    |  | $               | 31,399,665  |   |          | $ | 88,462      |  | 0.56 | %               |  | $ | 32,030,445  |   |             |   | 75,474    |  | 0.47 | %
|Money market accounts                      |  |                 | 18,780,250  |   |          |   | 204,375     |  | 2.18 | %               |  |   | 18,293,677  |   |             |   | 106,615   |  | 1.17 | %
|Savings deposits                           |  |                 | 40,805,365  |   |          |   | 179,684     |  | 0.88 | %               |  |   | 42,494,038  |   |             |   | 139,086   |  | 0.65 | %
|Time deposits                              |  |                 | 111,018,161 |   |          |   | 1,986,837   |  | 3.58 | %               |  |   | 105,160,453 |   |             |   | 1,376,896 |  | 2.62 | %
|Short term borrowings                      |  |                 | 3,945,539   |   |          |   | 49,164      |  | 2.49 | %               |  |   | 3,900,383   |   |             |   | 13,155    |  | 0.67 | %
|Federal Home Loan Advances                 |  |                 | 5,768,360   |   |          |   | 138,482     |  | 4.80 | %               |  |   | 6,655,703   |   |             |   | 152,017   |  | 4.57 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total interest bearing liabilities         |  |                 | 211,717,340 |   |          |   | 2,647,004   |  | 2.50 | %               |  |   | 208,534,699 |   |             |   | 1,863,243 |  | 1.79 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Noninterest bearing liabilities:           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Demand deposits                            |  |                 | 46,042,296  |   |          |   |             |  |      |                 |  |   | 43,416,157  |   |             |   |           |  |      |  
|Accrued expenses and other liabilities     |  |                 | 2,496,581   |   |          |   |             |  |      |                 |  |   | 1,853,052   |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total noninterest bearing liabilities      |  |                 | 48,538,877  |   |          |   |             |  |      |                 |  |   | 45,269,209  |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Shareholders equity                       |  |                 | 36,505,018  |   |          |   |             |  |      |                 |  |   | 35,125,176  |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total Liabilities and Shareholders Equity |  | $               | 296,761,235 |   |          |   |             |  |      |                 |  | $ | 288,929,084 |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Net interest income                        |  |                 |             |   |          | $ | 7,017,634   |  |      |                 |  |   |             |   |             | $ | 5,923,148 |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest rate spread (6)                   |  |                 |             |   |          |   |             |  | 4.47 | %               |  |   |             |   |             |   |           |  | 3.97 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Net yield on interest earning assets (7)   |  |                 |             |   |          |   |             |  | 5.06 | %               |  |   |             |   |             |   |           |  | 4.38 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  

---

|(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 $161,526 and $139,564 in 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 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.
|--- | -----------------------------------------------------------------------------------------------------------------------



-16-



---

##### Table of Contents

AVERAGE BALANCE SHEET

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

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



|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|------------------------------------------ |  | --------------- | ----------- | - | -------- | - | ----------- |  | ---- | --------------- |  | - | ----------- | - | ----------- | - | --------- |  | ---- | -
|                                           |  | Period Ended    |            
|                                           |  | 2006            |             |   | 2005     |  
|                                           |  | Average Balance |             |   | Interest |   | Yield/ Rate |  |      | Average Balance |  |   | Interest    |   | Yield/ Rate |  
|Assets                                     |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest Earnings Assets:                  |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Loans (1)(2)(3)                            |  | $               | 203,087,917 |   |          | $ | 4,072,393   |  | 8.02 | %               |  | $ | 217,912,077 |   |             | $ | 3,464,604 |  | 6.36 | %
|Securities-taxable (4)                     |  |                 | 19,768,927  |   |          |   | 235,248     |  | 4.76 | %               |  |   | 8,792,111   |   |             |   | 88,430    |  | 4.02 | %
|Securities-nontaxable (4)                  |  |                 | 32,227,122  |   |          |   | 353,868     |  | 4.39 | %               |  |   | 35,092,818  |   |             |   | 385,126   |  | 4.39 | %
|Securities-Equity (4,5)                    |  |                 | 1,623,289   |   |          |   | 25,701      |  | 6.33 | %               |  |   | 1,558,923   |   |             |   | 21,174    |  | 5.43 | %
|Federal funds sold                         |  |                 | 21,707,634  |   |          |   | 266,277     |  | 4.91 | %               |  |   | 8,405,771   |   |             |   | 58,936    |  | 2.80 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total interest earnings assets             |  |                 | 278,414,889 |   |          |   | 4,953,487   |  | 7.12 | %               |  |   | 271,761,700 |   |             |   | 4,018,270 |  | 5.91 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Noninterest earning assets:                |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Cash and due from other institutions       |  |                 | 9,714,383   |   |          |   |             |  |      |                 |  |   | 9,835,098   |   |             |   |           |  |      |  
|Premises and equipment, net                |  |                 | 5,247,123   |   |          |   |             |  |      |                 |  |   | 5,291,108   |   |             |   |           |  |      |  
|Accrued interest                           |  |                 | 1,211,188   |   |          |   |             |  |      |                 |  |   | 916,298     |   |             |   |           |  |      |  
|Other assets                               |  |                 | 5,638,183   |   |          |   |             |  |      |                 |  |   | 5,487,527   |   |             |   |           |  |      |  
|Less allowance for loan losses             |  |                 | (2,459,786  | ) |          |   |             |  |      |                 |  |   | (2,474,166  | ) |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total noninterest earnings assets          |  |                 | 19,351,091  |   |          |   |             |  |      |                 |  |   | 19,055,865  |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total Assets                               |  | $               | 297,765,980 |   |          |   |             |  |      |                 |  | $ | 290,817,565 |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Liabilities and Shareholders Equity       |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest bearing liabilities:              |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest bearing demand                    |  | $               | 30,944,211  |   |          |   | 45,331      |  | 0.59 | %               |  | $ | 32,271,282  |   |             |   | 40,282    |  | 0.50 | %
|Money market accounts                      |  |                 | 19,148,375  |   |          |   | 109,904     |  | 2.30 | %               |  |   | 19,003,417  |   |             |   | 64,624    |  | 1.36 | %
|Savings deposits                           |  |                 | 40,352,312  |   |          |   | 94,967      |  | 0.94 | %               |  |   | 41,937,010  |   |             |   | 73,355    |  | 0.70 | %
|Time deposits                              |  |                 | 112,010,083 |   |          |   | 1,042,250   |  | 3.72 | %               |  |   | 105,916,316 |   |             |   | 735,090   |  | 2.78 | %
|Short term borrowings                      |  |                 | 4,077,491   |   |          |   | 27,840      |  | 2.73 | %               |  |   | 3,817,122   |   |             |   | 8,563     |  | 0.90 | %
|Federal Home Loan Advances                 |  |                 | 5,678,666   |   |          |   | 68,211      |  | 4.80 | %               |  |   | 6,561,554   |   |             |   | 76,028    |  | 4.63 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total interest bearing liabilities         |  |                 | 212,211,138 |   |          |   | 1,388,503   |  | 2.62 | %               |  |   | 209,506,701 |   |             |   | 997,942   |  | 1.91 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Noninterest bearing liabilities:           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Demand deposits                            |  |                 | 46,233,133  |   |          |   |             |  |      |                 |  |   | 44,033,424  |   |             |   |           |  |      |  
|Accrued expenses and other liabilities     |  |                 | 3,260,662   |   |          |   |             |  |      |                 |  |   | 2,414,204   |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total noninterest bearing liabilities      |  |                 | 49,493,795  |   |          |   |             |  |      |                 |  |   | 46,447,628  |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Shareholders equity                       |  |                 | 36,061,047  |   |          |   |             |  |      |                 |  |   | 34,863,236  |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Total Liabilities and Shareholders Equity |  | $               | 297,765,980 |   |          |   |             |  |      |                 |  | $ | 290,817,565 |   |             |   |           |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Net interest income                        |  |                 |             |   |          | $ | 3,564,984   |  |      |                 |  |   |             |   |             | $ | 3,020,328 |  |      |  
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Interest rate spread (6)                   |  |                 |             |   |          |   |             |  | 4.50 | %               |  |   |             |   |             |   |           |  | 4.01 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  
|Net yield on interest earning assets (7)   |  |                 |             |   |          |   |             |  | 5.12 | %               |  |   |             |   |             |   |           |  | 4.45 | %
|                                           |  |                 |             |   |          |   |             |  |      |                 |  |   |             |   |             |   |           |  |      |  

---

|(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 $82,112 and $71,769 in 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 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.
|--- | -----------------------------------------------------------------------------------------------------------------------



-17-



---

##### Table of Contents

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).



|                                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|---------------------------------- |  | ---------------------------------------------------------------------------- | ---- | - | ---- | - | ----- | --- |  | - | ----- | -
|                                   |  | Six-Month Period Ended June 2006 Compared to 2005 Increase
(Decrease) Due To |     
|                                   |  | Volume                                                                       |      |   | Rate |   |       | Net | 
|Interest income                    |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Loans                              |  | $                                                                            | (698 | ) |      | $ | 2,056 |     |  | $ | 1,358 |  
|Securities-taxable                 |  |                                                                              | 297  |   |      |   | (97   | )   |  |   | 200   |  
|Securities-nontaxable              |  |                                                                              | (163 | ) |      |   | 78    |     |  |   | (85   | )
|Securities-equities                |  |                                                                              | 3    |   |      |   | 7     |     |  |   | 10    |  
|Federal funds sold                 |  |                                                                              | 396  |   |      |   |      |     |  |   | 396   |  
|                                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Total interest earning Assets      |  |                                                                              | (165 | ) |      |   | 2,044 |     |  |   | 1,879 |  
|                                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Interest expense                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Interest bearing demand            |  |                                                                              | (3   | ) |      |   | 16    |     |  |   | 13    |  
|Money market accounts              |  |                                                                              | 6    |   |      |   | 92    |     |  |   | 98    |  
|Savings deposits                   |  |                                                                              | (11  | ) |      |   | 52    |     |  |   | 41    |  
|Time deposits                      |  |                                                                              | 153  |   |      |   | 457   |     |  |   | 610   |  
|Short-term borrowing               |  |                                                                              |     |   |      |   | 36    |     |  |   | 36    |  
|Federal Home Loan Bank             |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Advances                           |  |                                                                              | (41  | ) |      |   | 27    |     |  |   | (14   | )
|                                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Total interest bearing Liabilities |  |                                                                              | 104  |   |      |   | 680   |     |  |   | 784   |  
|                                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  
|Net change in net interest income  |  | $                                                                            | (269 | ) |      | $ | 1,364 |     |  | $ | 1,095 |  
|                                   |  |                                                                              |      |   |      |   |       |     |  |   |       |  



-18-



---

##### Table of Contents

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).



|                                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|---------------------------------- |  | ------------------------------------------------------------------------------ | ---- | - | ---- | - | ----- | --- |  | - | --- | -
|                                   |  | Three-Month Period Ended June
2006 Compared to 2005 Increase
(Decrease) Due To |     
|                                   |  | Volume                                                                         |      |   | Rate |   |       | Net | 
|Interest income                    |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Loans                              |  | $                                                                              | (943 | ) |      | $ | 1,551 |     |  | $ | 608 |  
|Securities-taxable                 |  |                                                                                | 441  |   |      |   | (294  | )   |  |   | 150 |  
|Securities-nontaxable              |  |                                                                                | (126 | ) |      |   | 95    |     |  |   | (34 | )
|Securities-equities                |  |                                                                                | 3    |   |      |   | 2     |     |  |   | 5   |  
|Federal funds sold                 |  |                                                                                | 372  |   |      |   | (165  | )   |  |   | 207 |  
|                                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Total interest earning Assets      |  |                                                                                | (253 | ) |      |   | 1,189 |     |  |   | 936 |  
|                                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Interest expense                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Interest bearing demand            |  |                                                                                | (7   | ) |      |   | 12    |     |  |   | 5   |  
|Money market accounts              |  |                                                                                | 2    |   |      |   | 43    |     |  |   | 45  |  
|Savings deposits                   |  |                                                                                | (11  | ) |      |   | 33    |     |  |   | 22  |  
|Time deposits                      |  |                                                                                | 169  |   |      |   | 138   |     |  |   | 307 |  
|Short-term borrowing               |  |                                                                                | 2    |   |      |   | 18    |     |  |   | 20  |  
|Federal Home Loan Bank             |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Advances                           |  |                                                                                | (41  | ) |      |   | 33    |     |  |   | (8  | )
|                                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Total interest bearing Liabilities |  |                                                                                | 114  |   |      |   | 277   |     |  |   | 391 |  
|                                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  
|Net change in net interest income  |  | $                                                                              | (367 | ) |      | $ | 912   |     |  | $ | 545 |  
|                                   |  |                                                                                |      |   |      |   |       |     |  |   |     |  



-19-



---

##### Table of Contents

Item 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Market risk for the Company is comprised primarily from interest rate risk exposure and liquidity risk. Since virtually all of the interest-earning assets and paying
liabilities are at the Bank, virtually all of the interest rate risk and liquidity risk lies at the Bank level. The Bank is not subject to any trading risk. In addition, the Bank does not participate in hedging transactions such as interest rate
swaps and caps. Changes in interest rates will impact both income and expense recorded and also the market values of long-term interest-earnings assets. Interest rate risk and liquidity risk management is performed at the Bank level. Although the
Bank has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the immediate trade area.

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 the asset/liability program is
to manage the relationship between interest rate sensitive assets and liabilities, thereby minimizing the fluctuations in the net interest margin, which achieves consistent growth of net interest income during periods of changing interest rates.

Interest rate sensitivity is the result of differences in the amounts and repricing dates of a banks rate sensitive assets and rate sensitive
liabilities. These differences, or interest rate repricing gap provide an indication of the extent that the Companys net interest income is affected by future changes in interest rates. During a period of rising interest rates, a
positive gap, a position of more rate sensitive assets than rate sensitive liabilities, is desired. During a falling interest rate environment, a negative gap is desired, that is, a position in which rate sensitive liabilities exceeds rate sensitive
assets.

At June 30, 2006, the Company had a cumulative positive gap of $97.7 million or 32.76% at the one-year horizon. The gap analysis indicates
that if interest rates were to rise 200 basis points (2.00%), the Companys net interest income would improve at the one-year horizon because the Companys rate sensitive assets would reprice faster than rate sensitive liabilities.
Conversely, if rates were to fall 200 basis points (2.00 %), the Companys net interest income would decline.

Management also manages interest rate
risk with the use of simulation modeling which measures the sensitivity of future net interest income as a result of changes in interest rates. The analysis is based on repricing opportunities for variable rate assets and liabilities and upon
contractual maturities of fixed rate instruments.

The simulation also calculates net interest income based upon rate increases or decrease of + or 
200 basis points (or 2.00 %) in 100 basis point (or 1.00 %) increments. The analysis reprices the balance sheet and forecasts future cash flows over a one-year horizon at the net interest rate levels. The cash flows are then totaled to calculate net
interest income. Assumptions are made for loan and investment pre-payment speeds and are incorporated into the simulation as well. Loan and investment pre-payment speeds will increase as interest rates decrease and slow as interest rates rise. The
current analysis indicates that, given a 200 basis point overnight decrease in interest rates, the Company would experience a potential $761,000 or 16.26% decline in net interest income. If rates were to increase 200 basis points, the analysis
indicates that the Companys net interest income would increase $769,000 or 16.43%. It is important to note, however, that this exercise would be a worst-case scenario. It would be more likely to have incremental changes in interest rates,
rather than a single significant increase or decrease.

When management believes interest rate movements will occur, it can restructure the balance sheet
and thereby the ratio of rate sensitive assets to rate sensitive liabilities which in turn will effect the net interest income. It is important to note; however, that in gap analysis and simulation modeling not all assets and liabilities with
similar maturities and repricing opportunities will reprice at the same time or to the same degree and therefore, could effect forecasted results.



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Much of the Banks deposits have the ability to reprice immediately, however, deposit rates are not tied to an
external index. As a result, although changing market interest rates impact repricing, the Bank retains much of the control over repricing by determining itself the extent and timing of repricing deposit products. In addition, the Bank maintains a
portion of its investment portfolio as available for sale securities and also has a significant variable rate loan portfolio, which is used to offset rate sensitive liabilities.

Changes in market interest rates can also affect the Banks liquidity position through the impact rate change may have on the market value of the available for sale portion of the investment portfolio. Increase
in market rates can adversely impact the market values and therefore, make it more difficult for the Bank to sell available for sale securities needed for general liquidity purposes without incurring a loss on the sale. This issue is addressed by
the Bank with the use of borrowings from the Federal Home Loan Bank (FHLB) and the selling of fixed rate mortgages as a source of liquidity to the Bank.

The Companys liquidity plan allows for the use of long-term advances or short-term lines of credit with the FHLB as a source of funds. Borrowing from FHLB not only provides a source of liquidity for the Company,
but also serves as a tool to reduce interest risk as well. The Company may structure borrowings from FHLB to match those of customers credit requests, and therefore, lock in interest rate spreads over the lives of the loans.

In addition to borrowing from the FHLB as a source for liquidity, the Company also participates in the secondary mortgage market. Specifically, the Company sells fixed
rate, residential real estate mortgages to the Federal Home Loan Mortgage Corporation (Freddie Mac). The sales to Freddie Mac not only provide an opportunity for the Bank to remain competitive in the market place, by allowing it to offer
a fixed rate mortgage product, but also provide an additional source of liquidity and an additional tool for management to limit interest rate risk exposure. The Bank continues to service all loans sold to Freddie Mac.



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Item 4  CONTROLS AND PROCEDURES

The Company has carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys President and Chief Executive Officer and Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the President and Chief Executive Officer and Vice President and Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective, as of the end of the period covered by this report, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic
SEC filings.

Disclosure controls and procedures are the control and other procedures of the Company that are designed to ensure that the information
required to be disclosed by the Company in its reports or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchanges Commissions rules and forms.

There was no change in the Companys internal control over financial reporting that occurred during the Companys fiscal quarter ended
June 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

Part II  OTHER INFORMATION

Item 1 - Legal Proceedings

None

Item 1A  Risk Factors

There have been no material changes from the risk factors disclosed in the
registrants form 10K.

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

The Company did not engage in any
unregistered sales of its securities during the quarter ended June 30, 2006.

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
|April 1  30, 2006 |  |                                                |  |                                            |       |                                                                                                 | N/A |                                                                                                                             | N/A
|May 1  31, 2006   |  | 193                                             |  | $                                          | 106.66 |                                                                                                 | N/A |                                                                                                                             | N/A
|June 1  30, 2006  |  |                                                |  |                                            |       |                                                                                                 | N/A |                                                                                                                             | N/A
|Total (1)          |  | 193                                             |  | $                                          | 106.66 |                                                                                                 | N/A |                                                                                                                             | N/A

---

|(1) | 193 shares of common stock were purchased by Killbuck Bancshares in open-market transactions.
|--- | ---------------------------------------------------------------------------------------------

Item 3 - Default upon senior securities

None



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Item 4 - Results of votes of security holders

The following represent the results of matters submitted to a vote of the
shareholders at the annual meeting held on April 24, 2006.

Affixing the number of directors at nine for 2006:



|        |  |        
|------- |  | -------
|For     |  | 518,053
|Abstain |  | 260    
|Absent  |  | 124,105

Election of Directors:

The following directors were elected with terms to expire 2009:



|              |  |         |  |         
|------------- |  | ------- |  | --------
|              |  | For     |  | Withheld
|Allan Mast    |  | 518,053 |  | 124,365 
|Dean Mullet   |  | 518,053 |  | 124,365 
|Luther Proper |  | 518,053 |  | 124,365 

Other directors not up for election but continuing in office include: Ted Bratton; Max A. Miller;
Michael S. Yoder; John W. Baker; and Kenneth E. Taylor.

Item 5 - Other Information

None

Item 6 - Exhibits

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



|        |  |                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------
|3.1(i)  |  | Articles of Incorporation of Killbuck Bancshares, Inc.*                                                                
|        | 
|3.1(ii) |  | Amendment to the Articles of Incorporation of Killbuck Bancshares, Inc. increasing authorized shares.**                
|        | 
|3.2     |  | Code of Regulations of Killbuck Bancshares, Inc.*                                                                      
|        | 
|10.1    |  | Employment Contract                                                                                                    
|        | 
|10.2    |  | Employment Contract                                                                                                    
|        | 
|10.3    |  | Employment Contract                                                                                                    
|        | 
|31.1    |  | Section 302 Certification                                                                                              
|        | 
|31.2    |  | Section 302 Certification                                                                                              
|        | 
|32.1    |  | Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 
|32.2    |  | Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 
|99.1    |  | Report of Independent Registered Public Accounting Firm                                                                

---

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

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



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Signatures

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



|                     |  |                           |  |                        
|-------------------- |  | ------------------------- |  | -----------------------
|                     |  | Killbuck Bancshares, Inc.
|                     |  |                          
|Date: August 9, 2006 |  | By:                       |  | /s/ Luther E. Proper   
|                     |  |                           |  | Luther E. Proper       
|                     |  |                           |  | President and          
|                     |  |                           |  | Chief Executive Officer
|                     |  |                          
|Date: August 9, 2006 |  | By:                       |  | /s/ Diane Knowles      
|                     |  |                           |  | Diane Knowles          
|                     |  |                           |  | Chief Financial Officer



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